The latest small cap buy idea from Credit Suisse is enjoying a triple boom

Construction materials group Wagners Holding Company Ltd (ASX: WGN) couldn’t have picked a better time to list on the market with the boom in residential construction, infrastructure, and mining activity helping drive its share price up by over 40% from its offer price of $2.71 since December last year.

But Wagners is no bargain. With the stock trading at over 26 times its price-earnings (P/E) multiple on Credit Suisse’s FY18 forecast, a lot of good news is already priced in, particularly if you consider that an established player like Boral Limited (ASX: BLD) is trading on a consensus P/E of 21 times.

Furthermore, the boom in infrastructure or mining development hasn’t quite officially kicked off yet, although this is probably a question of “when” and not “if”.

However, if management’s bet on a new generation composite fibre product pays off, the stock will look cheap.

In many respects, it’s a speculative stock. You are either buying into a pretty expensive (but growing) buildings materials company, or you are buying a cheap Australian innovation play.

Wagners has enjoyed commercial success with its lighter-weight fibre materials in Australia and is looking to replicate this success in the United States and other markets, which Credit Suisse thinks could lift its revenue by four-fold over the longer term.

Australian innovation enjoying success in the US is not unprecedented either. Just look at Reliance Worldwide Corporation Ltd (ASX: RWC), which brought its one-click pipe repair product to the US.

Wagners will also find itself in good company in the world’s biggest economy as other Aussie building materials companies like Boral and James Hardie Industries plc (ASX: JHX) have a large presence in that country.

Wagners’ ability to penetrate the US market would be the biggest reason to buy this stock, in my mind, although Credit Suisse also points out that the Queensland-based company is well placed to benefit from an upswing in road and rail projects in that state.

But there are probably better priced stocks with more established businesses you could buy into if you were looking for exposure to infrastructure and mining activity. These include Downer EDI Limited (ASX: DOW) which looks cheap, while Boral is arguably a more attractive option for those looking for exposure to infrastructure and housing construction.

Credit Suisse, which was one of the lead managers on Wagners’ IPO, has an “outperform” rating on the stock with a price target of $4.20 a share.

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Motley Fool contributor Brendon Lau owns shares of Boral Limited. 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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