The S&P/ASX 200 Index (ASX: XJO) share Reece Ltd (ASX: REH) has been one of the hardest-hit in the index over the last few years. As the chart below shows, the company is down by 57% since September 2024.
The bathroom, HVAC, plumbing and waterworks business has a significant presence across Australia, New Zealand and the US. However, this diversification hasn't helped the business avoid a significant decline.
Reece's FY25 result did not inspire, with revenue declining 1%, operating profit (EBITDA) dropping 11% to $901 million, and earnings before interest and tax (EBIT) sinking 20% to $548 million. ANZ revenue rose 1% but US revenue declined 5% in US dollar terms.
Profit isn't going in the right direction, but there are a number of signs that this could be the right time to invest for brave investors.
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Compelling reasons to like the ASX 200 share
Firstly, revenue momentum seems to have improved from FY25. In the first quarter of FY26, the company reported that group sales were up 8% year-over-year, or 6% on a constant currency basis.
While EBITDA was down 8% and EBIT down 18% in the first quarter, the company said that a significant portion of that was due to network growth, ongoing investment in core capabilities and elevated depreciation and amortisation because of ongoing investment in the business.
We'd like to see profit rise year after year, but I think it's a good idea for Reece to invest for the long term because it should lead to stronger results for the business.
The company's investments in its network can help unlock revenue growth and should help Reece's economies of scale as it becomes larger.
In the first three months of FY26, Reece added another 15 branches across its two regions, with five new locations in Australia and New Zealand, as well as 10 new locations in the US.
The business is continuing to expect a period of "soft activity in both regions" – that's why the Reece share price has fallen so much over the past year, it's seeing weak conditions with no clear end in sight. But, I think this is the right time to invest when conditions are weak. Shares don't fall heavily for no reason.
Management see this as a good time to buy Reece shares, which is why the ASX 200 share recently announced another share buyback, this time for $35 million.
While earnings are projected to decline in FY26, earnings per share (EPS) is forecast to rise 14% in FY27, according to the forecast on CMC Markets. This could be the start of a longer-term recovery for the business, in my view. Rising profit could make a big difference to market confidence.
Based on that projection, the Reece share price is valued at 25x FY27's estimated earnings, which is a lot cheaper than it used to be.
