That stock markets have been in a difficult place recently is no secret. But progress can be made even during challenging times. Let me give you an example. I had long had paper and packaging provider Smurfit Kappa Group (LSE: SKG) on my investing wish list. But somehow or the other, I never seemed to get around to actually buying the FTSE 100 growth stock.
Smurfit Kappa’s share price dip
Until now, that is. In the recent stock market correction, it dipped pretty dramatically. It lost almost half of its value in the span of a month. I can see why this has happened. The company had been warning of increasing cost inflation for a while now, including in its latest update. Yet going by its share price trends, investors appeared to be confident in the FTSE 100 growth stock.
And then the war happened, which has made the inflationary threat even bigger. While many other FTSE 100 stocks have corrected too, this is probably most evident in those affected by commodity prices. So, it is no surprise really, that other packaging providers like Mondi and DS Smith have seen a significant fall as well.
Case to buy the FTSE 100 growth stock
But as any investor who has been around for a while knows, the best time to buy high-quality stocks is exactly during such times. This is why I bought Smurfit Kappa and I am already glad I did. Just yesterday, it gained 8%. What is there to complain about? Especially now, when a lot of my other stock investments are looking pretty bad.
Moreover, I reckon its price could rise. One of the simplest ways to estimate this is by considering its market multiples. Its price-to-earnings (P/E) ratio has fallen below that for the FTSE 100 at 14x, making it a cheap stock whose price could potentially rise at least a shade, if not more. At 13.5x, its P/E is slightly higher than that for its FTSE 100 peers. But then its recent numbers are good too, which means that a higher P/E is probably justified.
What happens next
I do think that these numbers could take a hit if the tragic Russia-Ukraine war continues because it means that prices will rise. And that could impact both its costs and its ability to pass them on, as consumers become more selective over time of what to buy as the real value of money declines.
But I also believe that over the long term, its prospects look pretty good. One of the big-picture themes I have been tracking for some time now is the e-commerce ecosystem, which is really the future of shopping.
Companies like Smurfit Kappa play a crucial role in its development, along with others like delivery company Royal Mail, warehousing real estate investment trusts like Segro and of course e-commerce marketplaces like Amazon. I think over the next 10 years, this segment is likely to grow by leaps and bounds, which is why I have bought Smurfit Kappa and will hold it for a long time.
