Those hoping that DuluxGroup Limited's (ASX: DLX) interim profit result would refuel the stock to shoot for a fresh record high will be disappointed.
Shares in the paint and building supplies group retreated 2.3% to $6.40 despite posting a respectable first-half performance.
Adjusted net profit jumped 9.3% to $61.4 million as sales lifted 4% to $836.9 million for the six months to end March, 2015. Shareholders were rewarded with a 10% increase in interim dividend to 11 cents a share.
But I am not surprised to see the stock slip on the news and I think it has further to fall before investors step in again.
There's nothing wrong with the result but after the stock's 11.5% jump over the past year, or 6.8 percentage points ahead of the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO), management needed to deliver more to justify the stock's lofty premium.
The stock closed at a record high of $6.73 three weeks ago.
Based on the current run rate, DuluxGroup is trading on an eye-watering price-earnings multiply of around 20x after the share price sell-off.
This multiple is usually reserved for companies with robust double-digit growth rates and DuluxGroup doesn't fit the bill even though it's seen as a quality growth stock.
I doubt today's result will lead to a material change in analysts' forecasts for the group and consensus estimates on Reuters are predicting around a 7% increase in earnings per share (EPS) for the next financial year.
Perhaps management could surprise on the upside from the turnaround in its garage door division, which has been the biggest drag on the half-year result with earnings before interest and tax tumbling 26.7% to $5.5 million.
But given that most new construction is centered on apartments, I am not holding my breath. Besides, garage doors only account for 7% of group EBIT.
The good news is that its largest division, paints and coatings, is growing its earnings and margins despite the weakening Australian dollar putting upward pressure on input costs.
This segment reported a 9% increase in EBIT to $78.7 million on the back of a 6.2% growth in sales to $442.4 million.
I think DuluxGroup is a good stock to add to anyone's watchlist, but I wouldn't be stepping up to buy the stock unless it falls well under the $6 mark.
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