Patrick Industries Inc (NASDAQ:PATK), a US$1.4b small-cap, is a building product company operating in an industry, which is relatively sensitive to changes in the business cycle. Capital goods analysts are forecasting for the entire industry, a positive double-digit growth of 25% in the upcoming year , and an enormous growth of 54% over the next couple of years. the growth rate of the US stock market as a whole. Below, I will examine the sector growth prospects, and also determine whether Patrick Industries is a laggard or leader relative to its capital goods peers.
What’s the catalyst for Patrick Industries’s sector growth?
There are plenty of emerging trends including raw material inflation and innovation in global supply chain management. Over the past year, the industry saw growth in the teens, though still underperforming the wider US stock market. Patrick Industries leads the pack with its impressive earnings growth of 73% over the past year. However, analysts are not expecting this industry-beating trend to continue, with future growth expected to be 11% compared to the wider building products sector growth hovering in the twenties next year. As a future industry laggard in growth, Patrick Industries may be a cheaper stock relative to its peers.
Is Patrick Industries and the sector relatively cheap?
The building products sector’s PE is currently hovering around 19.85x, in-line with the US stock market PE of 20.28x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a higher 14% compared to the market’s 10%, potentially illustrative of past tailwinds. On the stock-level, Patrick Industries is trading at a lower PE ratio of 12.36x, making it cheaper than the average building products stock. In terms of returns, Patrick Industries generated 28% in the past year, which is 14% over the building products sector.
Patrick Industries is building products industry laggard in terms of its future growth outlook. This is possibly reflected in the PE ratio, with the stock trading below its peers. If the stock has been on your watchlist for a while, now may be the time to dig deeper. Although the market is expecting lower growth for the company relative to its peers, Patrick Industries is also trading at a discount, meaning that there could be some value from a potential mispricing. However, before you make a decision on the stock, I suggest you look at Patrick Industries’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 PATK’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 Patrick Industries? 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.