Why Reece is the ASX share I'd really like to own

The Reece Ltd (ASX: REH) share price is currently trading at $10.34 on the ASX. Is it a buying opportunity?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

There are hundreds of companies listed on the ASX. This makes the process of deciding which ASX-listed companies to invest in a significant challenge for investors. Value investors preach the idea of buying high-quality companies which are trading at prices below true value. As Warren Buffett has demonstrated, this can be a highly profitable investment strategy. This investment strategy, however, does require you to first be able to identify a high quality company and understand its value.

One ASX-listed company which I believe passes the quality criteria is Reece Ltd (ASX: REH). Reece is Australia's leading supplier of bathroom and plumbing products and with hundreds of stores across the country, it is also a well recognised brand. The Reece share price is currently trading at $10.34. This share price represents a 20% discount in comparison to the highest share price achieved for Reece in the past 12 months.

Why Reece is a high-quality company

Reece has continually generated value for shareholders with high returns on equity over the past ten years. In this same time period, Reece's earning per share have more than doubled, while debt levels have remained low. This is a positive sign, demonstrating that the company's management teams have been able to put retained earnings to extremely good use. Additionally, they have not needed to use leverage to maintain their consistently high returns to shareholders.

Reece has recently acquired MORSCO Inc, a US-based plumbing business. Although completing this acquisition has increased the debt profile of Reece, it also gives the company access to the growing US market. The Reece management team have demonstrated great skill in growing the Reece business so far. If this can continue while expanding into the US, the value of Reece and its shares will also continue to grow.

Foolish Takeaway

Buying high-quality companies and holding them for a long time is a good investment strategy, so long as these companies are purchased at affordable prices. I believe that Reece is a high-quality company but that the Reece share price is currently too high to justify an investment. If the Reece share price does decline further, this could represent a great buying opportunity. Reece would be a great addition to anyone's portfolio and monitoring the share price for the next opportunity would be worthwhile.

While you're monitoring Reece, take a look at this unique stock set to profit off the coming marijuana boom…

Motley Fool contributor Mitchell Perry has no position in any of the stocks mentioned. 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 Scott Phillips.

More on Share Market News

Stock market chart in green with a rising arrow symbolising a rising share price.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a massive day for the ASX 200, with a new all-time high recorded.

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Technology Shares

This ASX tech stock rocketed 60% in March! Can it keep on delivering?

After soaring in March, the ASX tech stock is now up 169% since this time last year.

Read more »

Broker Notes

Brokers name 3 ASX shares to buy now

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A young man clasps his hand to his head with his eyes closed and a pained expression on his face as he clasps a laptop computer in front of him, seemingly learning of bad news or a poor investment.
Share Fallers

Why Burgundy Diamond Mines, Clarity Pharmaceuticals, EML, and Zip are sinking today

These ASX shares are ending the week in the red. But why?

Read more »

A young women pumps her fists in excitement after seeing some good news on her laptop.
Share Gainers

Why Mesoblast, Newmont, Pilbara Minerals, and Platinum shares are jumping

These ASX shares are ending the week strongly. But why?

Read more »

a young boy dressed up in a business suit and tie has a cute grin and holds two fingers up.
Opinions

2 of my top ASX 200 shares to consider buying before April

I would happily exchange dollars for these two shares right now.

Read more »

Father in the ocean with his daughters, symbolising passive income.
Dividend Investing

I'd spend $8k on these ASX 200 shares today to target a $6,102 annual passive income

I believe these ASX 200 shares will continue rewarding passive income investors for years to come.

Read more »

Three businesspeople leap high with the CBD in the background.
Share Market News

Boom! ASX 200 blasts to new record highs

ASX 200 investors just sent the benchmark index into uncharted territory.

Read more »