Are these 3 businesses true wealth builders?

Earnings should rise but is it already factored into the share price?

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What: This week Australia’s peak building body, the Housing Industry Association (HIA) revised upward its forecast for the outlook on residential building activity due to the strength of leading indicators. The HIA is now forecasting 180,000 dwelling commencements across Australia in 2014.

So what: The HIA’s upwardly revised outlook is great news for many companies exposed to the building industry including building materials supplier Boral Limited (ASX: BLD), and plumbing, fitting and fixtures suppliers Reece Australia Limited (ASX: REH) and GWA Group Ltd (ASX: GWA).

Now what: Importantly, the HIA also believes that dwelling commencements will remain at elevated levels beyond 2014. While the earnings for these three companies will most likely increase in upcoming periods, the real question for investors is whether this is already reflected in their respective share prices. Judging by the outperformance against the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) over the past 12 months for many stocks in the sector – including Boral, Reece and GWA – there is certainly reason to be cautious.

It’s never a good idea to be ‘late to the party’ on the stock market, so if you don’t already own these stocks you should be careful about trying to jump aboard in the hope that there are further gains to come. The home building trend has been gaining for some time and the market is forward looking.

So while the best is yet to come for these companies in terms of revenues and earnings, for investors it’s possible that the best gains have already passed.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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