American Vanguard Corporation (NYSE:AVD), a US$586.78m small-cap, is a chemicals company operating in an industry which supplies materials for construction. This means it is highly sensitive to changes in the economic cycle, a key driver of building activities. Basic material analysts are forecasting for the entire industry, a positive double-digit growth of 11.13% in the upcoming year , and a massive growth of 35.19% over the next couple of years. However this rate still came in below the growth rate of the US stock market as a whole. Today, I will analyse the industry outlook, as well as evaluate whether American Vanguard is lagging or leading in the industry.
What’s the catalyst for American Vanguard’s sector growth?
The sector seems to be mature in terms of its industry life cycle, with highly competitive companies and inevitable consolidation. In the past year, the industry delivered growth in the teens, though still underperforming the wider US stock market. American Vanguard leads the pack with its impressive earnings growth of 57.00% over the past year. However, analysts are expecting its future earnings growth to be more in-line with the industry average, hovering at 10.79% over the next couple of years.
Is American Vanguard and the sector relatively cheap?
The chemicals sector’s PE is currently hovering around 18x, in-line with the US stock market PE of 18.08x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a higher 13.51% compared to the market’s 11.40%, potentially illustrative of past tailwinds. On the stock-level, American Vanguard is trading at a higher PE ratio of 25.31x, making it more expensive than the average chemicals stock. In terms of returns, American Vanguard generated 7.05% in the past year, which is 6.45% below the chemicals sector.
American Vanguard is a chemicals industry laggard in terms of its future growth outlook. In addition to this, the stock is trading at a PE above its peers, meaning it is more expensive on a relative earnings basis.If American Vanguard has been on your watchlist for a while, now may not be the best time to enter into the stock. If growth and mispricing are important aspects for your investment thesis, there may be better investments in the materials sector. However, before you make a decision on the stock, I suggest you look at American Vanguard’s fundamentals in order to build a holistic investment thesis.
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Historical Track Record: What has AVD’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of American Vanguard? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.