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A LESSON ON CYCLES
Trailing ROIC & Forward P/E for WFG Stock, Koyfin
To the untrained investor, a high P/E multiple will often look like a bad investment decision.
The truth is, it absolutely is a bad decision.
But only if you cannot find a reason to justify the multiple that’s being assigned to the stock.
When you find companies with a high valuation multiple, and can spot a very clear reason as to why the market would be willing to overpay for that specific business…
That’s where the best swing opportunities often come from.
Right now, West Fraser Timber (WFG) is trading near the top of its forward P/E multiple ranges, and there’s a very important reason why.
The company’s return on invested capital (ROIC) rate is also at the bottom range of its historical cycle.
So why in the world would investors be looking to overpay for a company that is:
Losing money
Having its worst margins in over a decade
In an industry filled with tariff and interest rates risk
The answer is very simple really.
Wood products as an industry posted the best PMI composite score for the quarter, a breakout that came even with a ton of headwinds still present in the housing and mortgage market.
Today, I will walk you through why buying a cyclical company at the top of its valuation cycle is one of the best ways to make money in the market.
Especially when the industry is picking up momentum in the PMI reports.
And more importantly…
When Warren Buffett himself keeps buying homebuilding companies expecting higher prices ahead.
This one is part of several other companies in our PMI watchlist for the coming months.
Let’s get into it,
West Fraser is losing money (why I still bought it.)
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