MENU

Is Amcor Limited a buy?

Amcor Limited (ASX: AMC) seems to be the boring, predictable type of business that Warren Buffet loves. It’s understandable, predictable, steady, and best of all, capable of being valued.

Amcor is a global manufacturer and supplier of packaging products. It services a number of industries that are heavily reliant on packaging, including the food and beverage industry, healthcare, and tobacco industries. The company has three main segments: rigid plastics; flexibles; and an other/investment segment. Its rigid plastics segment provides rigid plastic containers for drinks, alcohol, sauces, dressings, and personal care items. Its flexible plastic segments provides products for confectionary, coffee, food and drink, medical, and tobacco products.

Recently, the Amcor share price has fallen sharply. It’s down 13% from its 52-week highs. A trading warning in early November led to a steep decline, but further drawdowns have continued in the absence of any further company announcements.

Certainly, the debt levels have increased and are of some concern. With a debt to equity ratio of over 4.5 the debt levels are high on the back on increasing debt and decreasing shareholders equity.

Amcor is currently trading at a price to earnings ratio of around 18, which is higher than the market at around 17, and the sector at around 15. So you’ll be paying a small premium for Amcor. However, given the debt that is being carried, using an enterprise multiple to ascertain value may be worthwhile. Enterprise value is simply market capitalisation minus debt plus cash or equivalents. Amcor has an enterprise value of around $21.4billion dollars. And with EBITDA of approximately $1.89 billion, Amcor is trading at an Enterprise Multiple of a little over 11.

Foolish Takeaway

Current multiples most likely represent fair value for a steady company. However, the high levels of debt dissuade me from buying at this time. I am inclined to wait for signs that the debt can be paid down and shareholder equity increased. Nonetheless, Amcor is a reliable company with predictable earnings, and investors could do worse.

The 66,826.77% “wonder share” that shows no sign of stopping

JUST RELEASED! Check out our brand-new free report, “One Stock to Buy and One to Sell in the Age of Amazon”… revealing our #1 recommendation for the future of online retail in Australia AND the #1 stock our experts are convinced you should unload immediately

Plus, you’ll even discover one special bonus recommendation! It’s a mind-blowing 66,826.77% winner that we believe will rocket into 2018 and beyond.

Your copy of this timely new report is completely free, so don’t miss out.

Enter your email address here to discover your brand-new FREE report.

Motley Fool contributor Stewart Vella has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…

Including:

The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!