Is It Too Late To Consider Buying Eagle Materials Inc. (NYSE:EXP)?

By
Simply Wall St
Published
September 28, 2021
NYSE:EXP
Source: Shutterstock

Eagle Materials Inc. (NYSE:EXP), might not be a large cap stock, but it received a lot of attention from a substantial price movement on the NYSE over the last few months, increasing to US$157 at one point, and dropping to the lows of US$131. 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 Eagle Materials' current trading price of US$140 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 Eagle Materials’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

View our latest analysis for Eagle Materials

Is Eagle Materials still cheap?

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. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Eagle Materials’s ratio of 17.62x is trading in-line with its industry peers’ ratio, which means if you buy Eagle Materials today, you’d be paying a relatively sensible price for it. So, is there another chance to buy low in the future? Given that Eagle Materials’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 Eagle Materials?

earnings-and-revenue-growth
NYSE:EXP Earnings and Revenue Growth September 28th 2021

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. With profit expected to grow by 50% over the next couple of years, the future seems bright for Eagle Materials. 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? EXP’s optimistic 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 financial strength of the company. Have these factors changed since the last time you looked at EXP? 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 tabs on EXP, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for EXP, 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.

If you want to dive deeper into Eagle Materials, you'd also look into what risks it is currently facing. You'd be interested to know, that we found 2 warning signs for Eagle Materials and you'll want to know about these.

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