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While Eagle Materials Inc. (NYSE:EXP) might not be the most widely known stock at the moment, it saw significant share price movement during recent months on the NYSE, rising to highs of US$148 and falling to the lows of US$120. 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$129 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.
See our latest analysis for Eagle Materials
What is Eagle Materials worth?
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 Eagle Materials’s ratio of 13.92x is trading slightly below its industry peers’ ratio of 14.93x, which means if you buy Eagle Materials today, you’d be paying a reasonable price for it. And if you believe Eagle Materials should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. Is there another opportunity to buy low in the future? Since Eagle Materials’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 Eagle Materials look like?
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. Eagle Materials' earnings over the next few years are expected to increase by 52%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.
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?