Is Fortune Brands Home & Security Inc’s (NYSE:FBHS) Growth Strong Enough To Justify Its November Share Price?

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Looking at Fortune Brands Home & Security Inc’s (NYSE:FBHS) fundamentals some investors are wondering if its last closing price of $45.7 represents a good value for money for this high growth stock. Let’s look into this by assessing FBHS’s expected growth over the next few years.

What can we expect from Fortune Brands Home & Security in the future?

Analysts are predicting good growth prospects for Fortune Brands Home & Security over the next couple of years. The consensus forecast from 18 analysts is bullish with earnings forecasted to rise significantly from today’s level of $2.946 to $4.744 over the next three years. This indicates an estimated earnings growth rate of 13% per year, on average, which signals a market-beating outlook in the upcoming years.

Is FBHS available at a good price after accounting for its growth?

Fortune Brands Home & Security is trading at quite low price-to-earnings (PE) ratio of 15.51x. This tells us the stock is undervalued relative to the current US market average of 18.43x , and undervalued based on its latest annual earnings update compared to the building average of 16.74x . This multiple is a median of profitable companies of 24 Building companies in US including Patrick Industries, Masonite International and Universal Forest Products.

NYSE:FBHS PE PEG Gauge November 5th 18
NYSE:FBHS PE PEG Gauge November 5th 18

Fortune Brands Home & Security’s price-to-earnings ratio stands at 15.51x, which is low, relative to the industry average. This already suggests that the stock could be undervalued. However, to be able to properly assess the value of a high-growth stock such as Fortune Brands Home & Security, we must incorporate its earnings growth in our valuation. The PEG ratio is a great calculation to take account of growth in the stock’s valuation. A PE ratio of 15.51x and expected year-on-year earnings growth of 13% give Fortune Brands Home & Security an acceptable PEG ratio of 1.19x. This tells us that when we include its growth in our analysis Fortune Brands Home & Security’s stock can be considered slightly overvalued , based on fundamental analysis.

What this means for you:

FBHS’s current overvaluation could signal a potential selling opportunity to reduce your exposure to the stock, or it you’re a potential investor, now may not be the right time to buy. However, basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PEG ratio is very one-dimensional. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:

  1. Financial Health: Are FBHS’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  2. Past Track Record: Has FBHS been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of FBHS’s historicals for more clarity.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.

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Founder of the event-driven, value-oriented hedge fund Third Point, Daniel Loeb is one of the most successful activist investors on the market today. Explore his portfolio’s top holdings, see how he diversifies his investments, past performance and growth estimates. Click here to view a FREE detailed infographic analysis of Daniel Loeb’s investment portfolio.

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