The Boral Limited (ASX: BLD) share price has been on a steady decline since the start of January 2018 and is currently trading at $4.49, after hitting a record four year low.
Boral is a multinational building materials company with operations in the United States and Asia. The nature of cyclical businesses such as Boral means external factors can directly affect the share price.
In the recent trading update, Boral stated that heavy rainfalls were the main disruptor of operations in Boral Australia and North America. USG Boral was also affected due to Typhoon Soulik which placed a halt on its operations in South Korea. Consequently, Boral's share price dropped when many shareholders started selling after this announcement.
Is it a good time to buy Boral shares?
An investor needs to ask whether Boral's business structure has fundamentally changed. In this case, the answer is no. My question to the shareholders who sold Boral shares in reaction to the trading update is, "Why did you buy Boral shares in the first place?" It's normal for cyclical businesses to have periods of expansion and contraction in its share price. An example of such would be to look at the share price of BHP Group Ltd (ASX: BHP) and select a one-year timeframe.
For value investors, cyclical events present buying opportunities. Boral is currently trading on a trailing PE of 12 times which is cheap compared to a PE of 17 times for the industry. The PEG ratio further highlights this discount with a value of 0.45. Additionally, Boral is paying a 5.2% dividend yield which is substantially higher than the industry average of 3.8%. The financial statements in the 2018 annual report show a healthy balance sheet with a positive cash reserve. This should provide peace of mind to investors who fear dividend cuts. Provided the cyclical issues don't affect Boral for much longer, dividend cuts are unlikely to occur in the near future.
The executive committee of Boral is made up of experienced individuals who have been with Boral for over 10 years. The remuneration of Boral's top managers is based on Boral's share price performance and increasing value for shareholders. Throughout the steady decline of Boral's share price, the executives have been buying shares and averaging down. If the executives have the confidence to average down their holdings, why shouldn't the investors?
Foolish takeaway
Boral's share price is trading at a strong discount which I think presents buying opportunities for individuals who can withstand the rollercoaster nature of cyclical stocks.
