When Should You Buy Summit Materials, Inc. (NYSE:SUM)?

Summit Materials, Inc. (NYSE:SUM), might not be a large cap stock, but it saw a decent share price growth in the teens level on the NYSE over the last few months. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Let’s examine Summit Materials’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for Summit Materials

Is Summit Materials Still Cheap?

The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. 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 Summit Materials’s ratio of 24.56x is trading in-line with its industry peers’ ratio, which means if you buy Summit Materials today, you’d be paying a relatively reasonable price for it. So, is there another chance to buy low in the future? Given that Summit 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.

What kind of growth will Summit Materials generate?

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 30% 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? SUM’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 track record of its management team. Have these factors changed since the last time you looked at SUM? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

Are you a potential investor? If you’ve been keeping tabs on SUM, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for SUM, 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.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Every company has risks, and we've spotted 2 warning signs for Summit Materials (of which 1 is a bit concerning!) you should know about.

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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.