One of the differences the pandemic has brought to our lives is that everyone realizes how much can be accomplished even when you’re not taking long commutes to the office. Over the past two years, this has driven people to buy or rent larger homes.
And it is not only the family that is behind this request. Many young people who shared accommodation no longer found it convenient when they spent so much time at home. When the new homes for sale turned out to be too expensive, they started looking further afield, especially since the distance from the office didn’t matter.
But commuter prices weren’t much better. Instead, many have sought rental accommodation. And the sudden increase in demand has resulted in a lack of availability followed by higher rates on rental properties as well.
So, while some found what they were looking for, a large number had to content themselves with redoing what they already had. And this phenomenon continues this year as well. Although over the next few months more properties become available, we have to accept that demand is so much higher that we have people choosing mobile homes and alternative accommodation until things normalize. .
And this is very good news for companies offering home improvement products, as we can see in the selection below-
Ethan Allen Interiors Inc. ETD
Ethan Allen, which is an interior design company that manufactures and sells home furnishings in the United States, Mexico, Honduras and Canada, reported strong results last Friday.
Farooq Kathwari, Chairman, President and CEO of Ethan Allen, said, “Our differentiation of relevant offerings, our strong and talented associates, and control of our manufacturing and logistics, have given us the opportunity to to post strong growth despite many ongoing challenges, including supply chain issues and inflation.”
So, despite these challenges, Ethen Allen was able to increase his revenue and profit by 16% and 38% respectively. What’s more, these results beat Zacks’ consensus estimates (profits beat 25% on revenue that beat 11%). Analysts have also raised their estimates (by 18 cents or 6% for the year ending June 2022 and by 4% for the following year).
Ethan Allen’s shares are rather undervalued, however. The P/E based on 12-month forward earnings is just 7.91X, well below the median level of 9.64X over the past year, as well as the 20.03X of the S&P 500. They are also undervalued on a P/S basis.
Zacks Rank #1 (Strong Buy) stock has a Value Score of A. So investors looking to keep their risk low may want to park their money here.
Tempur Sealy International TPX
Tempur Sealy focuses on bedding products sold in the United States and Canada, as well as other markets.
Tempur Sealy will report later this month. In the last reported quarter, it grew revenue 20% and profit 19%, excluding a slight negative currency impact. On this occasion, its President and CEO, Scott Thompson, attributed the strong sales to “the growth of all brands, products, channels and segments”. And this despite the fact that there were difficult compositions and supply chain constraints that did not allow him to meet all the demands.
The company remains focused on long-term growth through total addressable global market expansion, international expansion, industry-leading innovation capabilities, and balanced capital allocation. Very encouragingly, he assured that “In 2022 and beyond, we expect to leverage these complementary building blocks to drive double-digit sales and EPS growth.”
There have been no revisions to the estimates lately, which means that the Expected Surprise Prediction (ESP) for Zacks earnings is 0%. This still translates to a fair chance to beat earnings since the stock carries a Zacks rank of #2 (buy). Value and growth scores are A, indicating that this is a way to buy growth at relatively low prices.
Which brings us to the question of evaluation. Tempur Sealy shares are trading at 10.30XP/E, which is lower than their median value of 13.06X over the past year and of course the S&P 500. On a P/S basis, the shares are are trading at 1.36X, which is not cheap in absolute terms (P/S should ideally be below 1 to indicate undervaluation). But a comparison with where they have been over the past year and also with the S&P 500 is encouraging.
Beacon roofing supply BECN
Beacon Roofing Supply is a distributor of residential and non-residential roofing materials, as well as a variety of other building products for contractors, home builders, building owners, lumberyards and retailers.
Beacon Roofing is expected to report this week. In its most recent quarter, the company increased revenue by 7% and profit by 47%. While all segments of the business grew, non-roofing building products were the strongest, followed by non-residential roofing and then residential roofing. However, for the fiscal year ending in September, residential roofing was almost as strong as other building materials, with non-residential roofing growth slower.
Julian Francis, President and CEO of Beacon Roofing, attributed the results to “targeted market and price execution” and the success of its “high value-added solutions” which together enabled it to stand out. grow despite a “difficult supply environment”.
Over the past 30 days, analysts have raised their estimates for 2022 by an average of 23 cents (about 5%). Estimates for 2023 have also increased slightly. The company’s No. 2 Zacks ranking and 0.94% ESP indicate a good chance of beating its estimates this quarter.
Beacon Roofing shares have an A for value and a B for growth, meaning it’s also a way to buy growth at reasonable prices. On a P/S basis, the shares are trading at 0.55X, which is cheap both in absolute terms and relative to the S&P 500, and are at their median value over the past year. On a P/E basis, the shares are trading at 10.69X, well below their median value of 12.90X and the S&P 500.
One month price performance
Image source: Zacks Investment Research
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.