The last month has been a very different experience for investors in James Hardie Industries plc (ASX: JHX) compared to investors in Boral Limited (ASX: BLD). That's because, while the former released a disappointing set of results, the latter beat market expectations. As a result, shares in James Hardie are down 7% during the last month alone, while Boral is up 1% over the same time period.
Looking ahead, though, both stocks offer explosive growth potential and could boost your portfolio returns. Here's how.
Results
A key reason for James Hardie's disappointing first quarter update was a weak US market, with growth in housing starts proving to be well below those forecast by the company's management team. Indeed, at the start of the year they had budgeted for growth of over 15%, but it now seems apparent that this was a gross over-estimation, since the number is more likely to be mid-single digits. As a result, full-year profit guidance has been lowered by around 10%.
Meanwhile, Boral's update was much better. Its revenue increased by 7% year-on-year, with a significant cost-cutting initiative helping net profit to increase by 64% versus last year. Furthermore, strong cash generation and a diversified exposure to the US, Aussie and Asian markets mean that the company continues to have potential moving forward.
Growth prospects
Despite markedly different recent updates, the two companies do have one attribute in common: growth potential. Indeed, both stocks are expected to increase their bottom lines at rapid rates over the next couple of years.
For example, James Hardie's EPS is forecast to grow by 117% in the current year and by a further 30% next year. Similarly, Boral is due to post extremely strong earnings numbers going forward, with EPS expected to rise by 76% in the current year and by a further 32% next year.
Valuation
Clearly, it would be of little surprise for shares in both companies to trade at a significant premium to the market. After all, their earnings growth potential is huge. However, while their P/E ratios are relatively high, they do not appear to be excessive by any means.
For example, James Hardie has a P/E ratio of 34.2, while Boral's shares trade on a P/E ratio of 28. Although higher than the ASX's P/E of 15.8, when the two companies' growth potential is factored in it equates to price to earnings (PEG) ratios of just 0.50 (James Hardie) and 0.54 (Boral). Both of these are far less than the ASX's PEG ratio of 1.79 and show that both stocks offer growth at a very attractive price.