Fortune Brands Home Security (NYSE:FBHS) is a unique story. It has identified industry risks, made strategic moves in order to prepare for those threats, and it has performed extremely well since its 2011 IPO despite a difficult macroeconomic environment. 

Industry trends play a big role
Due to Fortune Brands' focus on home and security products, it relies heavily on the strength of the housing market. At the current time, mortgage rates are on the rise, credit is tight, and a limited supply of land has led to slowing construction. These are all negative developments, but home buyers (and investors) are still buying new property while rates remain historically low. Therefore, there could be more upside potential for Fortune Brands' stock in the near term.

It's also possible that current homeowners will look to upgrade and repair their homes. However, consumers have been cautious over the past several years, and they're less likely to spend on big-ticket items and services than in the past.

Fortune Brands admits that the U.S. housing recovery is likely to be uneven, and that a lot will depend on unemployment levels, consumer confidence, home prices, and credit availability.  

Let's break this down
As you might already know, unemployment levels are holding steady at 7.3%, but this is only because fewer people are looking for work. Many of those who are looking for work are finding lower-paying jobs. Therefore, we're seeing underemployment, which is a negative.  

Home prices are on the rise due to low supply and high demand, but with mortgage rates steadily increasing, this demand might begin to wane.  

As far as consumer confidence goes, it's a result of unemployment and the housing market. And when it comes to credit availability, the future is unpredictable.

Population will also play a role. Due to a weaker economy than in past decades, people are having fewer children. The population is still growing, but at a slower pace. The population growth rate:

  • 2009: 0.98%
  • 2010: 0.97%
  • 2011: 0.96%
  • 2012: 0.90%

Source: indexmundi.com  

On the surface, this is a negative for a company like Fortune Brands, or for almost any company for that matter. However, while organic population growth is likely to continue to slow, or stay at around the same levels, increased immigration is a very real possibility. This is especially the case if organic population growth slows because the government wants (and needs) more consumers.

Therefore, the government may make necessary allowances to get more consumers into the country if necessary. This, in turn, would have the potential to aid the housing market. But "potential" is the key word, since many immigrants would opt for apartment living.

Despite all the negatives...
It's evident that today's consumer is value oriented. We're light years away from the excess we saw in the 1980s and 1990s. Consumers now want lower prices on everything, which creates a challenging situation for Fortune Brands. That said, Fortune Brands has still managed to impress in most areas.

In the first half of 2013, Fortune Brands' net sales increased 11% year over year, mostly thanks to higher sales volumes in the U.S. market, especially from new construction. Net sales for different segments compared to the first half of 2012:

  • Kitchen and bath cabinetry:  up 12% year over year
  • Plumbing and accessories:  up $37.1 million to $49.7 million
  • Advanced materials windows and door systems:  up 10%
  • Security and storage:  down 6% (fewer promotions than last year)

(Source: 10-Q)

At the moment, Fortune Brands is doing just fine. It acquired WoodCrafters Home Products in June, which will greatly strengthen its position in bathroom cabinetry products and improve product diversification. 

Through organic and inorganic growth, product diversification, superior customer service, and share buybacks, Fortune Brands aims to be a better investment option than its peers.

Fortune Brands vs. peers
Fortune Brands has a market cap of $6.3 billion, making it similar in size to Masco (NYSE:MAS), with a market cap of $7.0 billion. American Woodmark (NASDAQ:AMWD) is a much smaller company, with a market cap of $537 million. Below are some key metric comparisons.

METRIC

Forward P/E

Net Margin

ROE

Dividend Yield

Short Position

Debt-to-Equity Ratio

Fortune Brands

22

4.22%

6.72%

1.10%

1.40%

0.15

Masco

18

0.65%

18.15%

1.50%

2.10%

6.61

American Woodmark

15

2.40%

10.96%

N/A

3.00%

0.16

(Source: company financial statements) 

With Fortune Brands trading at 22 times forward earnings, it appears to offer the least value compared to peers, but it sports a higher net margin than peers, debt management has been strong, and it yields 1.10%. Masco might offer the most impressive ROE, but it has had extreme difficulty delivering consistent profits, and a debt management has been poor. As far as America Woodmark goes, it's fundamentally sound, and it might present a good investment opportunity. The only negative is that you won't receive any dividends if you're required to wait for the stock to appreciate. 

Bottom line
Fortune Brands is a well-run operation, and it's doing a decent job setting itself up for all economic environments. This isn't likely to prevent downside moves in the stock price, but it does indicate strategic management.

Fortune Brands is the type of organization Foolish investors want to be invested in, but the timing doesn't seem to be ideal right now. If you're looking for a long-term investment in a quality company, then consider scaling into the position slowly, which will limit your risk. 

Dan Moskowitz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.