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When stock prices are falling, the best mindset to have is a long term one. High quality stocks such as Simpson Manufacturing Co., Inc. has fared well over time in a fickle stock market, which is why I want to bring it into light amongst all the chaos. Below I take a look at three key features of what makes a robust defensive stock investment: its size, financial health and track record.
Simpson Manufacturing Co., Inc., through its subsidiaries, designs, engineers, manufactures, and sells building construction products. Started in 1956, and headed by CEO Karen Colonias, the company provides employment to 3.14k people and has a market cap of US$3.0b, putting it in the mid-cap stocks category. Bear market volatility can have a short-term impact on large, well-established companies, but in the long-run, these businesses are likely to prevail. This is because fundamentally, nothing has changed. A fall in share price is hardly detrimental to its financial health and business operations. So, large-cap stocks are a safe bet to buy more of when the stock market is selling off.
Simpson Manufacturing currently has US$29m debt on its books which requires regular servicing. This means it needs to have sufficient cash-on-hand to meet upcoming interest expenses. Simpson Manufacturing generates enough earnings to cover its interest payments, more specifically, its interest coverage ratio (EBIT/interest) is 247x, which is well-above the minimum requirement of 3x. Moreover, its operating cash flows amply covers its total debt by over 2x, much higher than the safe minimum of 0.2x. Not to mention, it meets the basic liquidity requirement with current assets exceeding liabilities, which further builds on its financial strength in the face of a volatile market.
SSD’s profit growth over the previous five years has been positive, with an average annual rate of 17%, beating the market growth rate of 12%. It has also returned an ROE of 15% recently, above the industry return of 13%. This continuous market outperformance demonstrates a strong track record of delivering robust returns over many years, raising my confidence in Simpson Manufacturing as a long-term hold.
Next Steps:Based on these three factors, SSD makes for a strong long-term investment in the face of a fickle stock market. If you’re a risk averse investor, lining your portfolio with proven companies you’re willing to buy more and more of as the price falls, is a good strategy to build your wealth over the long run. This is the beginning of your research, but before you decide to buy SSD, I highly urge you to understand more about the company, in particular, in these following areas:
- Future Outlook: What are well-informed industry analysts predicting for SSD’s future growth? Take a look at our free research report of analyst consensus for SSD’s outlook.
- Valuation: What is SSD worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether SSD is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.