Newell Rubbermaid Inc. (NWL), Avery Dennison Corp (AVY): Expensive or Way, Way Too Expensive?

Problem is, with a 9.4% predicted annual earnings growth rate and a 2.4% dividend yield, even the most optimistic interpretation of Rubbermaid — the 14.6 P/E based on earnings with no charges deducted from them — suggests these shares are already overvalued.

Factor in Rubbermaid’s sizable $2 billion debt load and the company’s enterprise value bounces back up to 17.7. Value the company on its likely free cash flow — which Rubbermaid says will approximate $425 million this year — and the enterprise value-to-free cash flow ratio on the company begins to approach 22. Either way, these valuations look too large for Rubbermaid to support with a sub-10% profits growth rate.

Long story short, while I’m always leery of shorting stocks, I’d be very cautious about going long on Rubbermaid shares.

The article Rubbermaid Stock: Expensive or Way, Way Too Expensive? originally appeared on Fool.com.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends Mattel and Procter & Gamble. 

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.