LONDON -- I'm always searching for shares that can help ordinary investors like you make money from the stock market.
So right now I am trawling through the FTSE 100 and giving my verdict on every member of the blue-chip index. Simply put, I'm hoping to pinpoint the very best buying opportunities in today's uncertain market.
Today I am looking at CRH (LSE:CRH) to determine whether you should consider buying the shares at 1,514 pence.
I am assessing each company on several ratios:
- Price/earnings (P/E): Does the share look good value when compared against its competitors?
- Price/earnings-to-growth (PEG): Does the share look good value factoring in predicted growth?
- Yield: Does the share provide a solid income for investors?
- Dividend cover: Is the dividend sustainable?
Let's look at the numbers
|Stock||Price||3-Year EPS Growth||Projected P/E||PEG||Yield||3-Year Dividend Growth||Dividend Cover|
The consensus analyst estimate for this year's earnings per share is 0.88 euros (up 18%), and dividend per share is 0.65 euros (unchanged).
Trading on a projected P/E of 21.6, CRH appears to be valued at about half the level of its peers in the Construction and Materials sector, which are currently trading on an average P/E of around 41.
CRH's P/E and high double-digit growth rate give a PEG ratio of around 1.2, which implies that the share is fairly priced for the near-term earnings growth the company is expected to produce.
Offering a 3.6% yield, CRH's dividend income is about the same as the sector average. However, CRH's dividend payout has not grown over the past three years, implying that the yield could soon start to fall behind that of its competitors.
In addition, the dividend is just under one and a half times covered by earnings and therefore does not suggest there will be much room for further payout growth.
CRH is trading at a discount to its peers, but is the company too expensive?
As I say, CRH's shares are trading at a discount to the company's peers. However, I believe that CRH is currently too expensive.
CRH is an international supplier of building materials and therefore is more exposed than most to the fragile economic environment. Indeed, within CRH's full-year results released in February, the company announced profits for 2012 had fallen 5%. In particular, CRH reported that its European division had suffered a 40% profit fall.
That said, CRH also reported that profits at its North American division grew by 45%, which offset the majority of the European decline.
Furthermore, CRH is focused on streamlining its business and, during 2012, sold assets for 900 million euros, which helped the company reduce its net debt by 500 million euros. CRH's net debt now stands at 3 billion euros.
Nonetheless, I still believe CRH is overvalued. You see, CRH's projected P/E of 21 is the type of rating more often assigned to high-growth technology companies than to suppliers of building materials. Indeed, on a historic basis, CRH's projected P/E ratio is significantly above the P/E ratio of 15 that the company was trading at back in 2007, at the height of the housing bubble.
So overall, despite CRH's growth in North America, the shares currently look too expensive, and I think now does not look to be a good time to buy CRH at 1,514 pence.
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In the meantime, please stay tuned for my next verdict on a FTSE 100 share.
Fool contributor Rupert Hargreaves and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.