Buhler Industries Inc (TSX:BUI), a CADCA$112.50M small-cap, operates in the machinery manufacturing industry which follows trends in industrialization and industry base expansion. Machinery manufacturing companies in previously industrialized countries such as the United States or Germany are becoming increasingly more active in providing capital equipment and machinery to developing economies in Asia, Latin America and the Middle East. Capital goods analysts are forecasting for the entire industry, a highly optimistic growth of 52.49% in the upcoming year , and a strong near-term growth of 17.21% over the next couple of years. This rate is more than double the growth rate of the Canadian stock market as a whole. Is now the right time to pick up some shares in machinery companies? Today, I will analyse the industry outlook, as well as evaluate whether BUI is lagging or leading its competitors in the industry. View our latest analysis for Buhler Industries
What’s the catalyst for BUI’s sector growth?
Machinery manufacturers face the challenge of managing a plethora of new data so that it becomes useful, adapt technology to run their supply chains and operations more efficiently, and build strategic partnerships that will help grow market share. In the past year, the industry delivered growth of 4.27%, beating the Canadian market growth of -19.21%. Given the lack of analyst consensus in BUI’s outlook, we could potentially assume the stock’s growth rate broadly follows its machinery industry peers. This means it is an attractive growth stock relative to the wider Canadian stock market.
Is BUI and the sector relatively cheap?
Machinery companies are typically trading at a PE of 30x, above the broader Canadian stock market PE of 17x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry returned a similar 10.50% on equities compared to the market’s 9.49%. On the stock-level, BUI is trading at a higher PE ratio of 84x, making it more expensive than the average machinery stock. In terms of returns, BUI generated 0.71% in the past year, which is 10% below the machinery sector.
What this means for you:
Are you a shareholder? Machinery stocks are currently expected to grow faster than the average stock on the index. This means if you’re overweight in this sector, your portfolio will be tilted towards high-growth. However, the sector is also relatively more expensive, which may be reflective of this high growth expectation. If you’re currently concentrated in machinery, it may be worth revisiting your investment thesis for each stock.
Are you a potential investor? If you’ve been keeping an eye on the machinery sector, you may have just missed the boat on high growth potential as the market seems to have well and truly priced it into these stocks. The sector is relatively more expensive than the rest of the market which makes it less attractive to enter into companies like BUI right now.
For a deeper dive into Buhler Industries’s stock, take a look at the company’s latest free analysis report to find out more on its financial health and other fundamentals. Interested in other capital goods stocks instead? Use our free playform to see my list of over 100 other machinery companies trading on the market.