Should You Investigate Summit Materials, Inc. (NYSE:SUM) At US$26.67?

Published
May 19, 2022
NYSE:SUM
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Summit Materials, Inc. (NYSE:SUM), 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$36.29 at one point, and dropping to the lows of US$24.56. 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 Summit Materials' current trading price of US$26.67 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 Summit Materials’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for Summit Materials

What's the opportunity in Summit Materials?

According to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average, the stock currently looks expensive. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 22.68x is currently well-above the industry average of 16.67x, meaning that it is trading at a more expensive price relative to its peers. But, is there another opportunity to buy low in the future? Since Summit Materials’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. 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 Summit Materials look like?

earnings-and-revenue-growth
NYSE:SUM Earnings and Revenue Growth May 19th 2022

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 profit expected to more than double over the next couple of years, the future seems bright for Summit 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? It seems like the market has well and truly priced in SUM’s positive outlook, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe SUM should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on SUM for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the optimistic prospect is encouraging for SUM, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Case in point: We've spotted 2 warning signs for Summit Materials you should be mindful of and 1 of these is a bit concerning.

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

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About NYSE:SUM

Summit Materials

Summit Materials, Inc., through its subsidiaries, produces and sells construction materials and related downstream products for the public infrastructure, and residential and nonresidential end markets.

Undervalued with proven track record.