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Universal Forest Products, Inc. (NASDAQ:UFPI), which is in the building business, and is based in United States, saw a decent share price growth in the teens level on the NASDAQGS over the last few months. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, could the stock still be trading at a relatively cheap price? Let’s take a look at Universal Forest Products’s outlook and value based on the most recent financial data to see if the opportunity still exists.
What's the opportunity in Universal Forest Products?
The stock seems fairly valued at the moment according to my relative valuation model. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Universal Forest Products’s ratio of 18.9x is trading slightly below its industry peers’ ratio of 22.8x, which means if you buy Universal Forest Products today, you’d be paying a reasonable price for it. And if you believe that Universal Forest Products should be trading at this level in the long run, then there’s not much of an upside to gain from mispricing. Although, there may be an opportunity to buy in the future. This is because Universal Forest Products’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.
Can we expect growth from Universal Forest Products?
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 the company's future expectations. Universal Forest Products’s earnings over the next few years are expected to increase by 27%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? It seems like the market has already priced in UFPI’s positive 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 UFPI? 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 UFPI, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the optimistic forecast is encouraging for UFPI, 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 Universal Forest Products. You can find everything you need to know about Universal Forest Products in the latest infographic research report. If you are no longer interested in Universal Forest Products, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.