Is Service Corporation International (NYSE:SCI) Potentially Undervalued?

Today we're going to take a look at the well-established Service Corporation International (NYSE:SCI). The company's stock maintained its current share price over the past couple of month on the NYSE, with a relatively tight range of US$67.59 to US$74.22. However, does this price actually reflect the true value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Service Corporation International’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for Service Corporation International

What's The Opportunity In Service Corporation International?

The share price seems sensible at the moment according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. We’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 19.48x is currently trading slightly below its industry peers’ ratio of 19.67x, which means if you buy Service Corporation International today, you’d be paying a reasonable price for it. And if you believe Service Corporation International should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. Furthermore, it seems like Service Corporation International’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s priced similarly to industry peers. This is because the stock is less volatile than the wider market given its low beta.

What does the future of Service Corporation International look like?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to grow by a double-digit 11% over the next couple of years, the outlook is positive for Service Corporation International. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What This Means For You

Are you a shareholder? It seems like the market has already priced in SCI’s positive outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at SCI? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

Are you a potential investor? If you’ve been keeping tabs on SCI, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for SCI, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

So while earnings quality is important, it's equally important to consider the risks facing Service Corporation International at this point in time. For example, we've found that Service Corporation International has 2 warning signs (1 is potentially serious!) that deserve your attention before going any further with your analysis.

If you are no longer interested in Service Corporation International, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com