Polypipe Group plc (LON:PLP), a UK£762.73m small-cap, is a building product company operating in an industry which is relatively sensitive to changes in the business cycle. This is because the building sector is predominantly affected by shifts in the housing market, as a result of demand from construction projects. Generally, building product stocks are good buys during the early periods of economic growth due to the anticipated increase in demand. Capital goods analysts are forecasting for the entire industry, a positive double-digit growth of 14.60% in the upcoming year , and an enormous growth of 38.89% over the next couple of years. the growth rate of the UK stock market as a whole. Should your portfolio be overweight in the building product sector at the moment? Today, I will analyse the industry outlook, as well as evaluate whether Polypipe Group is lagging or leading its competitors in the industry. View out our latest analysis for Polypipe Group
What’s the catalyst for Polypipe Group’s sector growth?
The building products sector seems to be mainly in the mature life cycle. Companies appear highly competitive with each other and consolidation seems to be a common theme. There are plenty of emerging trends to deal with across the board including the reduction of waste, raw material inflation, and innovation in global supply chain management. In the previous year, the industry saw growth of 3.69%, though still underperforming the wider UK stock market. Polypipe Group is neither a lagger nor a leader, and has been growing in-line with its industry peers at around 3.69% in the prior year. However, analysts are expecting the company to accelerate ahead of its peers over the next year, and deliver a 21.28% growth next year. This growth may make Polypipe Group a more expensive stock relative to its peers.
Is Polypipe Group and the sector relatively cheap?
Building products companies are typically trading at a PE of 13.04x, in-line with the UK stock market PE of 17.08x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a higher 14.90% compared to the market’s 12.47%, potentially illustrative of past tailwinds. On the stock-level, Polypipe Group is trading at a PE ratio of 16.76x, which is relatively in-line with the average building products stock. In terms of returns, Polypipe Group generated 14.90% in the past year, in-line with its industry average.
Polypipe Group’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. However, this high growth prospect is most likely factored into the share price, given the stock is trading in-line with its peers. If Polypipe Group has been on your watchlist for a while, now may be the time to enter into the stock. If you like its growth prospects, you’ll be paying a fair value for the company. However, if you’re hoping to gain from an undervalued mispricing, this is probably not the best time. However, before you make a decision on the stock, I suggest you look at Polypipe Group’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 PLP’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 Polypipe Group? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!