Is the Beacon Roofing Supply Inc share price too low?
Good stocks at cheap prices are what the very best investors look for. In this time of economic turmoil and market volatility, could Beacon Roofing Supply Inc (NSQ: BECN) be one of them?
When it comes to the proven drivers of stock market gains, “good” and “cheap” are seen by some successful investors as a highly desirable mix of quality and value. Research shows that expensive, poor-quality stocks tend to underperform, while cheap, high-quality stocks can, on average, deliver much more reliable profits over time.
Beacon Roofing Supply Inc stock price is up 11.1% in the past three months and is currently trading at $56.6. The encouraging news is that it has at least some of the traits commonly associated with: two Influential drivers of investment returns: of high quality and a relatively cheap appraisal.
Here’s an idea of where to see that:
GET MORE DATA-DRIVEN INSIGHTS INTO NSQ:BECN »
Good quality stocks are favored by the market because they tend to be solid, reliable companies. Profitability is important, but so is the financial strength of the company. A track record of improving finances is essential.
One of the quality metrics for Beacon Roofing Supply Inc is that it succeeds 8 of the 9 financial tests in the Piotroski F-Score. The F-score is a world-class accounting checklist for finding stocks with an improving financial health trend. A good F-score suggests that the company has strong quality characteristics.
While quality is important, no one wants to pay too much for a stock, so an attractive valuation is also essential. With a weaker economy, earnings forecasts for the entire market are unclear. But there are some valuation metrics that can help, and one of them is earnings yield.
Revenue Return compares a company’s profits to the market valuation (calculated by dividing the company’s profit by the enterprise value). It gives you a total value of the stock (including the cash and debt), making it easier to compare different stocks. As a percentage, the higher the earnings yield, the better the stock is worth.
A rule of thumb for a reasonable profit return can be 5%, and the profit return for Beacon Roofing Supply Inc is currently 5.62%.
In summary, good quality and relatively cheap valuations point to those stocks that are most attractive to contrarian value investors. It is among these stocks that real wrong prices can be found. Once the market recognizes that these quality companies are on sale, those prices often recover.
What does this mean for potential investors?
Finding good quality stocks at cheap prices is a strategy used by some of the world’s most successful investors. But be warned: these factors do not guarantee future returns and we have identified some areas of concern with Beacon Roofing Supply Inc which you can find here.
Alternatively, if you want to find more stocks showing signs of strong quality and value, just take a look at this Quality & Value screen.