Shares in SABMiller (LSE: SAB) (NASDAQOTH: SBMRY.US) have experienced a very disappointing year, being down 13% while the FTSE 100 is up over 3% at the time of writing. Part of the reason for this has been general weakness surrounding companies with considerable exposure to the developing world, as the sustainability of the emerging market growth story has been called into question during 2014. However, does the share price weakness and question marks over emerging markets mean that SABMiller is no longer a super growth stock?
Strong Growth
SABMiller’s pedigree as a growth stock is clear, with the alcoholic beverage company posting double-digit earnings per share (EPS) gains in each of the last four years. Indeed, even though growth from emerging markets has been less than forecast over the last year, SABMiller is still expected to increase EPS by 2% in the current financial year (to the end of March 2014). This highlights the resilience of SABMiller and the products it sells (mainly beer).
Furthermore, growth forecasts for the next two financial years are very impressive, with SABMiller forecast to grow EPS by 9% next year and by 11% the following year. It seems as though the current year, although disappointing, was a blip and not the start of a period of prolonged downbeat earnings.
Good Value?
As with many things in life, you get what you pay for. Indeed, SABMiller’s strong growth record and impressive EPS forecasts don’t come cheap. With shares currently trading on a price to earnings (P/E) ratio of 18.7, they are considerably more expensive than the FTSE 100, which has a P/E of around 13.5. However, the price to earnings growth (PEG) ratio of SABMiller puts the impressive growth prospects and relatively high valuation together, and shows that SABMiller offers growth at a reasonable price. While a PEG ratio of 1.9 is some way above the ‘sweet spot’ of 1.0, it is better than that of the FTSE 100, which is above 2 (and therefore less attractive).
Looking Ahead
So, while SABMiller isn’t particularly cheap, it is undoubtedly a super growth stock. This is highlighted not only by its strong EPS growth forecasts over the next two years, but also by its relatively large exposure to emerging markets. They may have disappointed slightly of late but still look set to deliver growth that companies such as SABMiller are unable to find elsewhere. As a result, SABMiller looks all-set to deliver impressive levels of future growth and could have a strong 2014.
