Is Louisiana-Pacific Corporation (NYSE:LPX) Potentially Undervalued?

By
Simply Wall St
Published
April 11, 2022
NYSE:LPX
Source: Shutterstock

Louisiana-Pacific Corporation (NYSE:LPX), might not be a large cap stock, but it saw significant share price movement during recent months on the NYSE, rising to highs of US$78.35 and falling to the lows of US$57.51. 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 Louisiana-Pacific's current trading price of US$58.07 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 Louisiana-Pacific’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 Louisiana-Pacific

What's the opportunity in Louisiana-Pacific?

According to my valuation model, Louisiana-Pacific seems to be fairly priced at around 7.98% above my intrinsic value, which means if you buy Louisiana-Pacific today, you’d be paying a relatively reasonable price for it. And if you believe the company’s true value is $53.78, 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 Louisiana-Pacific’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.

What does the future of Louisiana-Pacific look like?

earnings-and-revenue-growth
NYSE:LPX Earnings and Revenue Growth April 11th 2022

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. 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 an extremely negative double-digit change in profit expected over the next couple of years, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for Louisiana-Pacific, at least in the near future.

What this means for you:

Are you a shareholder? Currently, LPX appears to be trading around its fair value, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on the stock, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on LPX for a while, now may not be the most advantageous time to buy, given it is trading around its fair value. The price seems to be trading at fair value, which means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help crystalize your views on LPX should the price fluctuate below its true value.

If you'd like to know more about Louisiana-Pacific as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 2 warning signs for Louisiana-Pacific you should be mindful of and 1 of them is a bit unpleasant.

If you are no longer interested in Louisiana-Pacific, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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