Here's Why Svenska Cellulosa Could be a Great Value Stock

Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?

One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Svenska Cellulosa Aktiebolaget SCA (publ) SVCBY stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:

PE Ratio

A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.

On this front, Svenska Cellulosa has a trailing twelve months PE ratio of 8.55, as you can see in the chart below:

This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 20.17. If we focus on the long-term PE trend, Svenska Cellulosa’s current PE level puts it much below its midpoint of 21.92 over the past few years. In fact, the current level stands close to the lows for the stock, suggesting that it could be a superb entry point.

Further, the stock’s PE also compares favorably with the Zacks classified Basic Materials sector’s trailing twelve months PE ratio, which stands at 17.52. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
 

We should also point out that Svenska Cellulosa has a forward PE ratio (price relative to this year’s earnings) of just 4.54, so it is fair to say that a more value-oriented path may be ahead for Svenska Cellulosa stock in the near term too.

P/S Ratio

Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.

Right now, Svenska Cellulosa has a P/S ratio of about 0.49. This is way lower than the S&P 500 average, which comes in at 3.13 right now. Also, as we can see in the chart below, this is well below the highs for this stock in particular over the past few years.

If anything, SVCBY is in the lower end of its range in the time period from a P/S metric, suggesting some level of undervalued trading—at least compared to historical norms.

Broad Value Outlook

In aggregate, Svenska Cellulosa currently has a Zacks Value Style Score of ‘A’, putting it into the top 20% of all stocks we cover from this look. This makes Svenska Cellulosa a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, the PEG ratio for Svenska Cellulosa is just 0.68, a level that is far lower than the industry average of 1.92. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Additionally, its P/CF ratio (another great indicator of value) comes in at 2.82, which is far better than the industry average of 6.98. Clearly, SVCBY is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though Svenska Cellulosa might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘D’ and a Momentum score of ‘A’. This gives SVCBY a Zacks VGM score—or its overarching fundamental grade—of ‘A’. (You can read more about the Zacks Style Scores here >>)

Meanwhile, the company’s recent earnings estimates have been encouraging, as the full year estimate has seen one upward and no downward revision in the past sixty days. This has had a positive impact on the consensus estimate, as the full year consensus estimate has inched higher by 1.2% in the past two months. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Svenska Cellulosa AB Price and Consensus

Svenska Cellulosa AB Price and Consensus | Svenska Cellulosa AB Quote

Thanks to this bullish trend, the stock boasts a Zacks Rank #2 (Buy), which indicates why we are looking for outperformance from the company in the near term.

Bottom Line

Granted, Svenska Cellulosa is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Further, this Zacks Rank #2 company enjoys a strong industry rank (Top 25% out of over 250 industries), which signals favorable broader factors for the company. In fact, over the past one year, the Zacks categorized Paper & Products industry has clearly outperformed the broader market, as you can see below:

So, it might pay for value investors to delve deeper into the company’s prospects, as fundamentals and solid metrics indicate that this stock could be a compelling pick.

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