Brickworks Limited shares surge to a 6-year high: Is it too late to buy?

The housing boom has been kind to Brickworks Limited (ASX:BKW) share price but profits are only just starting to catch up, making the company look pricey.

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What happened? The Brickworks Limited (ASX: BKW) share price last week surged to a new 6-year high on the back of the ongoing strength of the local housing market and positive forward indicators that point to 213,000 new homes being built in Australia this year.

So What? Shareholders that bought in at the low of $9 back in 2011 would be sitting pretty on a 70% gain in five years versus a gain of just 22% for the ASX 200.  The interesting thing though, is that the strength in Brickworks’ share price has been driven by investors scrambling for exposure to the housing market, rather than fundamentals.

Disappointingly for long-time shareholders, Brickworks doesn’t appear to have made many strides forward as a business since 2006.

Revenue improved from $486 million in the 2006 financial year to $670 million in the 2014 financial year (Brickworks’ FY ends on July 31 so results are due soon), however over the same time net profit has actually fallen from $101.9 million to $101.3 million. Due to the issue of new shares, earnings per share have fallen from 76.8 cents to 68.4 cents, while the dividend payout has improved from 36 cents to 42 cents.

Now What? Brickworks is expected to announce its 2015 financial year earnings result later this month. Analysts at this stage are expecting a net profit result of around $125 million, terrific news, while earnings per share should increase to around 84 cents and the dividend payout to 52 cents for the full year.

The downside is that the same analysts can’t see Brickworks improving its earnings again the year after, projecting a slide back to $122 million. Brickworks currently trades on a price to earnings ratio of 18.3, above that of fellow building product suppliers CSR Limited (ASX: CSR), Adelaide Brighton Ltd. (ASX: ABC) and Boral Limited (ASX: BLD) and the market as a whole.

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Motley Fool contributor Andrew Mudie has no position in any stocks mentioned. You can find Andrew on Twitter @andrewmudie Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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