The Motley Fool

The DS Smith share price is up 30%: should I buy now?

Image source: Getty Images

The DS Smith (LSE: SMDS) share price rose 30% in the past year. The box maker has outperformed the FTSE 100 index, which rose about 10% in the same period.

Should I consider buying DS Smith shares for my portfolio?

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

DS Smith’s recent results

DS Smith released its fiscal year 2021 results on 22 June 2021. Revenue fell 1% to £6.0bn. However, the e-commerce growth helped offset the revenues lost in the early part of the year due to Covid-19 disruptions. Also, the company’s focus on fibre-based packaging has helped the company to win more business. In the words of chief executive Miles Roberts,“The growth drivers of e-commerce sustainability and plastic-free packaging have accelerated over the last twelve months and we are very well placed to capitalise on this growth.”

The company’s pre-tax profit fell 37% to £231m. However, management is confident that it has exited the year in a better position. They believe that higher costs are more related to Covid-19 during the early part of the year. In the second half of the year, the profits improved, particularly in the North American region. The group’s second-half adjusted operating profit was £272m compared to £230m during the first half.

DS Smith’s free cash flow improved to £486m from £354m for the previous year; it was mainly due to the good cash management. It also helped to reduce the net debt to £1.8bn, which is positive. As a result, net debt to EBITDA (earnings before interest, taxes, depreciation, and amortisation) is currently 2.2 times. This is below the banking requirement of 3.75 times. 

The company announced the final dividend of 8.1p per share. This is in addition to the interim dividend of 4.0p previously announced in December 2020, taking the total dividend to 12.1p. This is encouraging since the company did not pay dividends last year due to the uncertainty in the macro environment. 

Risks that might impact DS Smith’s share price

Looking into the cost structure of the company, the majority of costs are variable, which will increase even though revenues increase. In addition, the input costs increased this year due to higher fabric prices which increased the cost of paper production. This is a bit of concern for me and I will be closely watching the costs. 

Covid-19 cases have once again started to increase in many parts of the globe. It is too early to believe that the company will return to strong growth. If cases increase, more lockdowns could negatively impact the DS Smith share price.

Final view

The company’s performance in the past year has been satisfactory. I believe that the company will benefit from the e-commerce boom in the long term. This is one reason why I like the stock. But, I am not fully convinced that profits will improve soon. So, I will keep the stock on my watchlist for now and I am not a buyer of the stock today.

FREE REPORT: Why this £5 stock could be set to surge

Are you on the lookout for UK growth stocks?

If so, get this FREE no-strings report now.

While it’s available: you'll discover what we think is a top growth stock for the decade ahead.

And the performance of this company really is stunning.

In 2019, it returned £150million to shareholders through buybacks and dividends.

We believe its financial position is about as solid as anything we’ve seen.

  • Since 2016, annual revenues increased 31%
  • In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
  • Operating cash flow is up 47%. (Even its operating margins are rising every year!)

Quite simply, we believe it’s a fantastic Foolish growth pick.

What’s more, it deserves your attention today.

So please don’t wait another moment.

Get the full details on this £5 stock now – while your report is free.

Royston Roche has no position in any of the shares mentioned. The Motley Fool UK has recommended DS Smith. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.