RPM International’s forward PE multiple
After looking at analysts’ recommendations in the previous part, we’ll look at RPM International’s (RPM) latest valuation compared to its peer. As of July 10, 2017, RPM International’s one-year forward PE (price-to-earnings) multiple stood at 18.45x—compared to its peer PPG Industries’ (PPG) one-year forward PE multiple of 16.84x.
The forward PE multiple is a relative valuation that considers a company’s future earnings. It’s a useful tool for investors to compare two or more companies that are operating in the same industry. The PE multiple helps investors judge which company is overvalued and undervalued. It tells investors how much they’re paying for a stock per dollar of its expected earnings over the next 12 months.
RPM is trading at a premium to its peer
Currently, RPM International is trading at a premium to its peer PPG Industries. RPM International plans to achieve $7.0 billion in revenues by 2020. RPM International is moving towards its goal through an aggressive acquisition strategy. In fiscal 2017, RPM International acquired nine companies, which contributed to its revenue and earnings growth. RPM International is expected to continue its aggressive acquisition strategy to improve its earnings. Analysts expect RPM International’s fiscal 2018 EPS (earnings per share) to be $3.00, which implies 13.9% growth compared to its fiscal 2017 EPS.
On the other hand, analysts expect PPG Industries’ 2018 EPS to grow 6.9%. With RPM International’s higher EPS growth rate, it’s trading at a premium compared to its peer.
Investors can hold RPM International indirectly by investing in the SPDR S&P Dividend ETF (SDY), which has invested 1.0% of its portfolio in RPM International. The fund’s top holdings include AbbVie (ABBV), Chevron (CVX), and Target (TGT) with weights of 1.8%, 1.6%, and 1.6%, respectively, as of July 10, 2017.