Is Now the Time to Buy the Weir Group?
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 Weir Group to determine whether you should consider buying the shares at 2,173 pence.
I am assessing each company on several ratios:
- Price/Earnings (P/E): Does the share look like a good value when compared against its competitors?
- Price Earnings Growth (PEG): Does the share look a good value factoring in predicted growth?
- Yield: Does the share provide a solid income for investors?
- Dividend Cover: Is the dividend sustainable?
So let's look at the numbers:
3-year EPS Growth
3-year Dividend Growth
Trading on a projected P/E of 14.7, Weir appears cheaper than its peers in the industrial engineering sector, which are currently trading on an average P/E of around 18.
Weir's P/E and double-digit growth rate give a PEG ratio of around 1.2, which implies the share price is marginally over-priced for the near-term earnings growth the firm is expected to produce.
Weir offers a 1.6% yield, which is less than the sector average of 2.5%. However, Weir has a three-year compounded dividend growth rate of 57%, implying the yield could soon catch up to that of its peers.
Indeed, the dividend is covered four times by earnings, giving Weir plenty room for further payout growth.
Weir has achieved rapid growth over the past few years but will this continue?
Weir Group is an engineering company focused on the design and manufacture of pumping equipment used in various mining, energy and industrial markets. I believe this diversification and exposure to the fast growing oil and gas sector has been the catalyst for Weir's rapid earnings growth over the past three years.
That said, Weir's earnings could soon start to come under pressure, as capital spending within the mining and industrial sectors has almost come to a halt. In addition, oil exploration activity within the group's key U.S. market is cooling off.
Indeed, within the company's third-quarter update released in November, Weir reported that total group orders were down 15% from the previous year.
Furthermore, Weir's debt grew by 25% during the first six months of 2012, as the company bought-out a series of smaller rivals to try and bolster organic growth.
Nonetheless, the company's management remains upbeat, recently reporting that earnings for the year are in-line with market estimates, thanks to targeted cost reductions and increasing global diversification.
Overall, despite Weir's solid historic growth, the global economic outlook remains uncertain and Weir's customers continue to be cautious. So, after taking all these points into account and factoring in the group's dependence on the global economy, I feel now does not look to be a good time to buy Weir Group at 2,173 pence.
More FTSE opportunities
Although I feel now may not be the time to buy Weir Group, I am more positive on the FTSE 100 share highlighted within this exclusive free report.
You see, the blue chip in question offers a 5.7% income, its shares might be worth 850pcompared to about 700 pence now -- and it has just been declared "The Motley Fool's Top Income Stock for 2013"!
Just click here to read the report -- it's free.
In the meantime, please stay tuned for my next verdict on a FTSE 100 share.
The article Is Now the Time to Buy the Weir Group? originally appeared on Fool.com.Fool contributor Rupert Hargreaves has no position in any stocks mentioned. The Motley Fool recommends Weir Group. 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.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.