USG Shares Soared: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Today, for no particular reason, shares of wallboard maker and Berkshire Hathaway (NYS: BRK.B) holding USG (NYS: USG) shot up more 10% (before slipping back to close up 8%).

So what: What caused the spike? It's hard to say. I mean, yes, USG announced a new product offering yesterday -- an ultralight version of its famed Sheetrock product for use in fire-retardant partitions. Is it exciting? I suppose some folks might find it so ... but I doubt even professional contractors would claim this improvement is "10%-price-bump exciting."

My guess is what we're seeing here is a bounce off USG's 52-week low, which the stock hit just Tuesday. No more, no less, than investors seeing (or hoping they see) a bottom, and trying to buy the stock at it.

Now what: Are they right to do so? I wish I could tell you, Fool. But to be perfectly blunt, while it's clear that things are bad at USG, there's not a whole lot of evidence that things have gotten as bad as they can get, and can't get any worse. Perusing the firm's numbers, we see trailing net income is less negative than it was in 2010, but free cash flow is negative ... and getting more so. The stock's cheap in relation to USG's book value -- but not yet selling for less than book value (actually, it's 40% above book). So I can't say it's an obvious bargain under that metric, either.

So while it's entirely possible that buyers at today's prices will make out like bandits, it's just as possible that folks thinking USG is a "steal" are just walking into a value trap.

Has USG hit bottom, and begun its big bounce?Add it to your Fool Watchlistand find out.

At the time thisarticle was published Fool contributorRich Smithdoes not own (or short) shares of any company named above.The Motley Fool owns, andMotley Fool newsletter serviceshave recommended buying, shares of Berkshire Hathaway. 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 adisclosure policy.

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