Let's talk about the popular Fortune Brands Home & Security, Inc. (NYSE:FBHS). The company's shares received a lot of attention from a substantial price movement on the NYSE over the last few months, increasing to US$112 at one point, and dropping to the lows of US$94.06. 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 Fortune Brands Home & Security's current trading price of US$97.26 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Fortune Brands Home & Security’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
Is Fortune Brands Home & Security still cheap?
The stock seems fairly valued at the moment according to my valuation model. It’s trading around 13% below my intrinsic value, which means if you buy Fortune Brands Home & Security today, you’d be paying a reasonable price for it. And if you believe that the stock is really worth $111.56, then there isn’t much room for the share price grow beyond what it’s currently trading. So, is there another chance to buy low in the future? Given that Fortune Brands Home & Security’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
Can we expect growth from Fortune Brands Home & Security?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. 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 profit expected to grow by 47% over the next couple of years, the future seems bright for Fortune Brands Home & Security. 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? It seems like the market has already priced in FBHS’s positive outlook, 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 confidence to invest in the company should the price drop below its fair value?
Are you a potential investor? If you’ve been keeping tabs on FBHS, 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 further examining 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 Fortune Brands Home & Security at this point in time. You'd be interested to know, that we found 2 warning signs for Fortune Brands Home & Security and you'll want to know about them.
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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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