Is Brambles Limited a bargain at this share price?

Credit: DubSnipe

It hasn’t been a great time to be a shareholder of Brambles Limited (ASX: BXB). Since the middle of August the share price of the supply chain logistics company has fallen 15%, compared to a 4.5% decline in the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).

A significant portion of this decline has come in the last month following the release of its first quarter trading update.

For the first three months of FY 2017 Brambles reported sales revenue from continuing operations of US$1,420.1 million. This represented a 5% increase on the prior corresponding period.

This led management to forecast full year revenue growth from continuing operations of 7% to 9%, with underlying profit expected to be between US$1,055 million and US$1,075 million.

Although this reflects growth of 9% to 11%, investors didn’t appear to be impressed by the projections that management provided.

As the operator of the world’s largest pallet pool, Brambles does provide investors with defensive qualities. But that is still not enough in my opinion to justify its shares changing hands at over 21x full year earnings.

In order for its shares to command a premium of that level over the market average I believe earnings growth would need to be far higher than current forecasts.

So at this point in time I wouldn’t yet class Brambles as being a bargain buy. It might be worth keeping a close eye on the company though. If the current downtrend that its share price has been experiencing continues, it won’t be long until it reaches a level that makes it attractive again.

In the meantime I would sooner gain exposure to the logistics industry through an investment in WiseTech Global Ltd (ASX: WTC).

WiseTech is a leading provider of software solutions to the logistics industry globally and has far brighter growth prospects than Brambles in my opinion.

Alternatively these rapidly growing shares could be even better investment options. Are they in your portfolio?

Why These 3 Blue Chip Shares Are Set to Soar for Smart Investors

Discover The Motley Fool's Top 3 blue chips for Smart Investors. These 3 'new breed' shares pay fully franked dividends AND offer the prospect of significant capital appreciation. Simply click here to gain access to this comprehensive FREE investment report.

No credit card required!

Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia owns shares of WiseTech Global. 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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.