While S&P Stays Flat, Avery Dennison Jumps 10% – Time To Buy?

Avery Dennison’s (NYSE:AVY) stock jumped 10% in the last 5 trading days, whereas the S&P 500 barely moved up 1%. Should you make a decision to invest now? We think that it may still not be the right time to buy the stock, and arrive at our conclusion by assessing Avery Dennison’s recent market movement from three perspectives:

1. Relative positioning in the market
2. Underlying financial trends, and
3. The output of the Trefis machine learning engine which looks at past patterns to predict near term behavior

Our dashboard Big Movers: Avery Dennison Moved 10% – What Next? lays this out.

What relative positioning suggests: Are you a value investor who identifies and invests in under-priced securities based on market comparisons? Then this might be important to you.

Avery Dennison’s stock price decreased -9.7% this year, from $128.87 to $116.35, before moving 10% last week, and ending at $128.02. So effectively, the stock hasn’t moved at all this year. But what do the multiples say? At the beginning of this year, Avery Dennison’s trailing 12 month P/E ratio was 35.7. This figure decreased -47% to 18.7, before ending at 20.6 after last week’s move. Compared to the year beginning figure, Avery’s stock is certainly much cheaper. But this assessment is incomplete without peer comparison. Compared to Avery Dennison’s P/E multiple of 20.6, the figure for its peers such 3M, International Paper, and Packaging Corp of America stand at 18.9, 25.7, and 19.8 respectively, which suggests that there may not be much room for the stock to grow unless earnings improve significantly.

What fundamentals suggest: Want to consider long term investment? Then pay attention here.

Avery Dennison’s stock price increased 10% last week. In comparison, the stock has increased 18.4% between 2017 and 2019, and has increased 17.1% between 2017 and now. So not a lot of return for investors in recent years which casts some doubt over whether the uptrend can hold up. Let’s see what underlying financials have to say.

Avery Dennison’s revenue has increased 6.9% from $6,614 Mil in 2017 to $7,070 Mil in 2019. Some growth there, but what’s important to note is that the revenue declined slightly between 2018 and 2019. In addition, for the last 12 months, this figure stood at $6,786 Mil, implying another decrease of -4% over 2019 numbers. How about profitability? We note that Avery Dennison’s net margins were flattish at 4.3% in 2017 and 2019. But for the last 12 months, this figure stood at 7.68%. While margin trend may be okay, it is the top line growth that concerns us. This means that a longer term bet on the stock could be debatable.

What machine learning algorithm suggests: More interested in short term returns? Then you might want to give this perspective more weight.

Our AI engine analyzes past patterns in stock movements to predict near term behavior for a given level of movement in the recent period and suggests a significant 37% probability of Avery Dennison moving up another 5% over the next 21 trading days. Compared to this, the probability of moving down by -5% is 24%, suggesting a greater likelihood of upside. Our detailed dashboard highlights the chances of Avery Dennison’s stock rising after a fall and should help you understand near-term return probabilities for different levels of movements.

Taking all 3 perspectives together, Avery Dennison may not be a sure bet right now. But, what if you could invest in a winning portfolio? Here’s a top-quality portfolio to outperform the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.

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