Last Friday, Reece Ltd (ASX: REH) shares plummeted 17% after the company released its latest trading update.
Reece is a specialist wholesaler of plumbing and waterworks supplies. Reece's products are used in residential, commercial, and infrastructure applications. While the majority of Reece's operations are centred in Australia and New Zealand, Reece now has 261 stores in the United States.
In the two years before 2025, Reece's share price almost doubled. In September 2024, it reached an all-time high of $29.38.
However, 2025 has been a forgettable year so far for Reece investors. The ASX 200 stock is down 36% for the year to date. Last week, it fell 17% in one day after releasing a pessimistic trading update.
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What happened?
The company flagged that "underlying volumes continue to be subdued" as it navigates a challenging cycle. This was attributed to housing market softness.
Management also highlighted continued soft volumes in Australia and New Zealand, noting that recent rate cuts are yet to result in improved housing activity.
Additionally, management revealed that competition in the US market had intensified across all segments.
Reece expects Group FY25 earnings before interest and tax (EBIT) to decline 18% year over year to between $548 and $558 million.
Have Reece shares been oversold?
Despite rebounding 2% from last week's low, Reece shares are not too far off their 52-week low of $13.38.
Investors may be wondering whether this is an opportunity to buy Reece shares in the dip.
With the S&P/ASX 200 Index (ASX: XJO) sitting not far off its record high, investors may be finding it increasingly challenging to find ASX 200 companies at attractive prices.
However, in a 27 June research note, broker Macquarie Group Ltd (ASX: MQG) has retained its neutral rating on the stock after reviewing the result.
The broker has assigned a price target of $14.50 to Reece shares. With those shares closing yesterday at $14.42, this suggests the share price will remain flat over the next 12 months.
When affirming its rating, Macquarie said:
Continued market softness across both regions and heightened competition in the US have weighed on performance. The tariff context adds a layer of uncertainty to US market conditions. We think valuation is full, with REH trading on 28x MQe FY26 EPS (and ~22x MQe FY27 EPS).
On the subject of tariffs, the broker commented:
The US tariff context remains uncertain; however, we lower our price adjustment in FY26 to current China tariff levels of ~34% (from ~145% prior). We continue to assume an almost complete price- based cost recovery (and no margin percentage recovery).
Foolish Takeaway
Despite falling significantly last week, broker Macquarie is tipping Reece shares to stay relatively flat from here over the next year. This suggests that buying in the dip isn't always the best strategy. If Macquarie's forecast materialises, investors who buy Reece shares today expecting a rebound may be disappointed.
