James Hardie Industries plc (ASX:JHX), a materials company based in Ireland, saw significant share price volatility over the past couple of months on the ASX, rising to the highs of $21.06 and falling to the lows of $17.2. 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 JHX's current trading price of $17.2 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 JHX’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change. Check out our latest analysis for James Hardie Industries
What is JHX worth?
According to my relative valuation model, JHX seems to be currently fairly priced. I’ve used the price-to-equity ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 24.6x is currently trading slightly below its industry peers’ ratio of 31.6x, which means if you buy JHX today, you’d be paying a fair price for it. And if you believe that JHX should be trading at this level in the long run, then there’s not much of an upside to gain from mispricing. Furthermore, it seems like JHX’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s fairly valued. This is because JHX’s stock is less volatile than the wider market given its low beta.
What does the future of JHX 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.Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at JHX future expectations. With profit expected to grow by 38.55% over the next couple of years, the future seems bright for JHX. It looks like higher cash flows is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? JHX’s optimistic future growth appears to have been factored into the current share price, 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 JHX? 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 an eye on JHX, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for JHX, which means it’s worth further examining other factors such as the strength of its balance sheet, 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 James Hardie Industries. You can find everything you need to know about JHX in the latest infographic research report. If you are no longer interested in James Hardie 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 pass 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.