Should I Buy Weir Group

LONDON -- It's a great time to go shopping for shares, with more stocks selling at a discount to their recent prices. Is now a good time to pop Weir Group (LSE: WEIR  ) into my basket?

WEIRd science
Glasgow-based engineer Weir Group has been on my watchlist for several years and I've been waiting for the right time to pump some of this stock into my portfolio. After enjoying rapid growth, it's always been a bit out of my price range, but could there be a buying opportunity ahead?

Weir Group is up 137% over five years and 54% over the past 12 months, against 9% and 16% respectively for the FTSE 100, but even it couldn't defy the recent correction. Its share price has dropped 10% in the last month from its 52-week high of £24.70 to today's price of £21.85. It is falling, primarily, because markets are falling. In other words, it's a great company, selling at a discount. But is it a big enough discount?

Turbine-charged growth
The market wasn't unduly worried when Weir Group released an interim management statement on May 1 showing a 14% like-for-like fall in first-quarter input and a 30% drop in original equipment orders. Weir had warned of lower first half revenues and margins, but said this would be offset by growth in the second half, "supported by continued gradual economic and end market improvement". There was further good news, with recent acquisitions, notably Mathena, making a positive contribution. After a brief dip, the shares enjoyed a mini-surge (until recent days).

Re-reading that statement, my interest in Weir Group is tempered by manager predictions of "low single digit revenue growth and broadly stable margins", which suggests it will struggle to repeat the excitement of recent years. Forecast earnings per share (EPS) growth of 3% this calendar year confirm that, although a 9% growth forecast for 2014 look a little more lively. 

But it is quite a slowdown from the 57% EPS growth enjoyed in 2010 and 33% in 2011, when Weir's share price was also flying. Let's hope there is more growth to come from the shale revolution, especially with the U.K. slowly embracing fracking, which relies on the type of equipment Weir specializes in. However, Shale is a fledgling industry, and can be turbulent, as Weir has discovered to its cost in the past. This stock is also exposed to a slowdown in China, although its strong aftermarket gives it a safety valve.

Pump it up
I can put up with subdued growth expectations in today's troubled world, provided the operation is solid, which it is, and the yield is decent, which it isn't. Right now, Weir Group yields just 1.7%, less than half the FTSE 100 average of 3.6%. Covered four times, there is plenty of scope for growth, especially since management hiked the full-year dividend a progressive 15% in February. Yet it is only on a forecast 2% for Dec. 31, 2014. 

Despite its recent dip, Weir is pricier than the average FTSE 100 stock, trading at 14.5 times earnings against 12.75 times. Is it still one to watch? Yes. Is it one to buy? For me, not yet.

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