Is Now The Time To Look At Buying Fletcher Building Limited (NZSE:FBU)?

Fletcher Building Limited (NZSE:FBU), is not the largest company out there, but it saw significant share price movement during recent months on the NZSE, rising to highs of NZ$5.68 and falling to the lows of NZ$4.81. 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 Fletcher Building's current trading price of NZ$5.14 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 Fletcher Building’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Our analysis indicates that FBU is potentially undervalued!

What Is Fletcher Building Worth?

According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 9.26x is currently trading slightly below its industry peers’ ratio of 13.25x, which means if you buy Fletcher Building today, you’d be paying a reasonable price for it. And if you believe that Fletcher Building should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Although, there may be an opportunity to buy in the future. This is because Fletcher Building’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

What kind of growth will Fletcher Building generate?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. However, with a relatively muted profit growth of 7.0% expected over the next couple of years, growth doesn’t seem like a key driver for a buy decision for Fletcher Building, at least in the short term.

What This Means For You

Are you a shareholder? FBU’s future growth appears to have been factored into the current share price, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at FBU? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you’ve been keeping an eye on FBU, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive growth outlook may mean it’s worth diving deeper into other factors in order to take advantage of the next price drop.

So while earnings quality is important, it's equally important to consider the risks facing Fletcher Building at this point in time. In terms of investment risks, we've identified 1 warning sign with Fletcher Building, and understanding it should be part of your investment process.

If you are no longer interested in Fletcher Building, 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.