At NZ$4.54, Is It Time To Put Fletcher Building Limited (NZSE:FBU) On Your Watch List?
Fletcher Building Limited (NZSE:FBU), might not be a large cap stock, but it saw significant share price movement during recent months on the NZSE, rising to highs of NZ$5.61 and falling to the lows of NZ$4.46. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Fletcher Building's current trading price of NZ$4.54 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 Fletcher Building’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
View our latest analysis for Fletcher Building
What's The Opportunity In Fletcher Building?
According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. 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 Fletcher Building’s ratio of 15x is trading slightly below its industry peers’ ratio of 16.07x, which means if you buy Fletcher Building today, you’d be paying a reasonable price for it. And if you believe that Fletcher Building should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Furthermore, it seems like Fletcher Building’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s priced similarly to industry peers. This is because the stock is less volatile than the wider market given its low beta.
What does the future of Fletcher Building look like?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. Fletcher Building's earnings over the next few years are expected to increase by 74%, 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 FBU’s positive outlook, with shares trading around industry price multiples. 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 FBU? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?
Are you a potential investor? If you’ve been keeping tabs on FBU, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for FBU, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Every company has risks, and we've spotted 3 warning signs for Fletcher Building (of which 1 is concerning!) you should know about.
If you are no longer interested in Fletcher Building, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
