I looked at PPG Industries not far ago (read more) and I found that business momentum is still strong, but valuation is high and I see no reason to buy shares. Well, lately company presented a profit warning, which shows that business is not that good:
The company forecast a net loss of 74 cents to 77 cents per share, reflecting previously disclosed pension settlement charges of $2.31 per share.
PPG now expects to earn $1.54 to $1.57 per share vs. consensus estimates of $1.71 per share. In the same period last year, PPG earned $1.52 per share.
Share price dropped by 8.5$. Well, does it really make sense? Expected adjusted for one-offs result is $0.15 lower, which is 10% below. So shares falling by 8.3% assumes that in the future all results will be lower by 10%. Well, it might be too much, but on the other hand valuation is still not low (P/E = 15, EV/EBITDA = 9, Dividend yield 1.6%) and I see some space for further contraction.
Remember that in bad times company was paying even up to 7% dividend yield. OK, now times are different, but 1.6% yield is still not a lot and below broad market yield.
There is also other thought which crossed my mind. Look what’s happening when company is growing slower – shares are plummeting. Investors are so demanding nowadays that companies must present not only growth, but fast one. What will happen to valuations on broad market when economy will slow down and companies will present 2-3 quarters of decline in results?
Summing up, one day I will buy PPG shares, but this day didn’t come yet. Be patient.
Disclaimer PPG – no position