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Why Shares of Masco Rose 11% in October

By John Bromels - Nov 9, 2019 at 10:00AM

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The manufacturer of top home improvement brands posted solid growth.

What happened

Shares of home improvement product manufacturer Masco ( MAS 0.36% ) were up 11% in October, according to data provided by S&P Global Market Intelligence. The share price rose steadily throughout the month, outpacing the S&P 500's 2% growth, but really jumped after the company reported strong third-quarter earnings on Oct. 30. 

This continued an impressive winning streak for Masco, whose shares are up 58.4% so far this year.

A man and a woman roll blue paint onto a wall.

Strong growth in Masco's paint business helped it outperform in Q3. Image source: Getty Images.

So what

Masco manufactures a diverse group of home improvement brands, including Behr paint, Delta faucets, Kichler lighting, and HotSpring spas. The company is in the process of divesting its cabinetry business as well as its windows and doors business. Business was booming in Q3, and Masco reported solid results across the board.

Revenue grew by 2% year over year to $1.9 billion; gross margin increased by 150 basis points, to 34.2%; and operating profit grew by 10% year over year, to $316 million. The company also repurchased 3.8 million shares during the quarter and increased its 2019 guidance for earnings per share by $0.11, to a range of $2.52 to $2.56 per share. The company also successfully divested its U.K. windows business and signed an agreement to sell its Milgard brand of windows and doors. 

With everything coming up roses for Masco, it's easy to see why investors bid up the stock. 

Now what

Even with the company's big price run-up, Masco is still trading at just 20.2 times earnings, which is toward the low end of its historic range and also at the low end of the sector, so from a valuation standpoint, the stock still looks compelling.

However, because Masco depends on home renovations and new home construction for its sales, it's the opposite of a recession-resistant company. New homes, renovations, and spa installations are easy purchases to delay in the event of an economic downturn, so investors should be aware of the recession risks that come with this otherwise strong company.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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