What Does James Hardie Industries plc's (ASX:JHX) Share Price Indicate?

July 22, 2022
  •  Updated
August 15, 2022
ASX:JHX
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James Hardie Industries plc (ASX:JHX) saw a decent share price growth in the teens level on the ASX over the last few months. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Let’s take a look at James Hardie Industries’s outlook and value based on the most recent financial data to see if the opportunity still exists.

Check out our latest analysis for James Hardie Industries

What's the opportunity in James Hardie Industries?

James Hardie Industries is currently expensive based on my price multiple model, where I look at the company's price-to-earnings ratio in comparison 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 James Hardie Industries’s ratio of 23.16x is above its peer average of 13.65x, which suggests the stock is trading at a higher price compared to the Basic Materials industry. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Since James Hardie Industries’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. 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 does the future of James Hardie Industries look like?

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ASX:JHX Earnings and Revenue Growth July 22nd 2022

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. James Hardie Industries' earnings over the next few years are expected to increase by 87%, 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 well and truly priced in JHX’s positive outlook, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe JHX should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on JHX for a while, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the optimistic prospect is encouraging for JHX, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. While conducting our analysis, we found that James Hardie Industries has 1 warning sign and it would be unwise to ignore this.

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