Should You Investigate Armstrong World Industries Inc (NYSE:AWI) At US$57.76?
Armstrong World Industries Inc (NYSE:AWI), which is in the building business, and is based in United States, received a lot of attention from a substantial price movement on the NYSE over the last few months, increasing to $72.2 at one point, and dropping to the lows of $57.76. This high level of volatility gives investors the opportunity to enter into the stock, and potentially buy at an artificially low price. A question to answer is whether Armstrong World Industries’s current trading price of $57.76 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Armstrong World Industries’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
See our latest analysis for Armstrong World Industries
What is Armstrong World Industries worth?
The stock seems fairly valued at the moment according to my relative valuation model. In this instance, I’ve used the price-to-equity (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Armstrong World Industries’s ratio of 13.26x is trading slightly below its industry peers’ ratio of 16.55x, which means if you buy Armstrong World Industries today, you’d be paying a reasonable price for it. And if you believe Armstrong World Industries should be trading in this range, then there isn’t much room for the share price grow beyond where it’s currently trading. So, is there another chance to buy low in the future? Given that Armstrong World Industries’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
What does the future of Armstrong World Industries look like?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Though in the case of Armstrong World Industries, it is expected to deliver a relatively unexciting earnings growth of 3.0%, which doesn’t help build up its investment thesis. Growth doesn’t appear to be a main reason for a buy decision for the company, at least in the near term.
What this means for you:
Are you a shareholder? It seems like the market has already priced in AWI’s growth outlook, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at AWI? Will you have enough confidence to invest in the company should the price drop below its fair value?
Are you a potential investor? If you’ve been keeping tabs on AWI, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive growth outlook may mean it’s worth diving deeper into other factors in order to take advantage of the next price drop.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Armstrong World Industries. You can find everything you need to know about Armstrong World Industries in the latest infographic research report. If you are no longer interested in Armstrong World Industries, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
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 editorial-team@simplywallst.com.
