Fletcher Building Limited (NZSE:FBU), might not be a large cap stock, but it received a lot of attention from a substantial price movement on the NZSE over the last few months, increasing to NZ$7.95 at one point, and dropping to the lows of NZ$7.03. 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$7.56 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.
Is Fletcher Building still cheap?
According to my valuation model, Fletcher Building seems to be fairly priced at around 5.05% above my intrinsic value, which means if you buy Fletcher Building today, you’d be paying a relatively fair price for it. And if you believe the company’s true value is NZ$7.20, there’s only an insignificant downside when the price falls to its real value. Is there another opportunity to buy low in the future? Since Fletcher Building’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.
Can we expect growth from Fletcher Building?
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. With revenues expected to grow by a double-digit 14% over the next couple of years, the outlook is positive for Fletcher Building. If the level of expenses is able to be maintained, it looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? FBU’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at the stock? Will you have enough conviction to buy should the price fluctuates below the true value?
Are you a potential investor? If you’ve been keeping tabs on FBU, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for the company, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, 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.
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This article by Simply Wall St is general in nature. 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.
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