Should You Think About Buying Simpson Manufacturing Co., Inc. (NYSE:SSD) Now?
Simpson Manufacturing Co., Inc. (NYSE:SSD), is not the largest company out there, but it saw significant share price movement during recent months on the NYSE, rising to highs of US$122 and falling to the lows of US$99.73. 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 Simpson Manufacturing's current trading price of US$101 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 Simpson Manufacturing’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 Simpson Manufacturing
Is Simpson Manufacturing still cheap?
The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. 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 Simpson Manufacturing’s ratio of 14.1x is trading slightly below its industry peers’ ratio of 17.35x, which means if you buy Simpson Manufacturing today, you’d be paying a decent price for it. And if you believe Simpson Manufacturing should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. Is there another opportunity to buy low in the future? Since Simpson Manufacturing’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.
What kind of growth will Simpson Manufacturing generate?
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 Simpson Manufacturing, it is expected to deliver a negative earnings growth of -1.2%, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.
What this means for you:
Are you a shareholder? SSD seems priced close to industry peers right now, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on SSD, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on SSD for a while, now may not be the most optimal time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. In addition to this, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help gel your views on SSD should the price fluctuate below the industry PE ratio.
If you'd like to know more about Simpson Manufacturing as a business, it's important to be aware of any risks it's facing. For instance, we've identified 2 warning signs for Simpson Manufacturing (1 is a bit concerning) you should be familiar with.
If you are no longer interested in Simpson Manufacturing, 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.
