James Hardie Industries plc (ASX: JHX) shares have been on a rollercoaster over the past year.
Earlier this year, the building products giant lost around 40% of its value as investors worried about its large US acquisition, softer earnings, and governance uncertainty.
Fast forward to today, and sentiment has shifted dramatically. James Hardie shares jumped 6% on Thursday to $36.99, taking their gain for the year to almost 20%.
So, what's driving the turnaround?
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Better-than-expected earnings
The biggest catalyst was James Hardie's preliminary first-quarter FY27 results.
The company reported consolidated net sales of between US$1.449 billion and US$1.475 billion, comfortably ahead of previous guidance of US$1.315 billion to US$1.354 billion.
Profit also surprised on the upside. EBITDA came in between US$399 million and US$407 million, well above management's earlier guidance of US$354 million to US$375 million.
The stronger-than-expected result suggests the company is executing better than many investors in James Hardie shares had feared.
A market leader with pricing power
James Hardie remains the dominant fibre cement manufacturer in North America and Australia.
Its strong brand, extensive distribution network, and reputation for durable products create competitive advantages that are difficult for rivals to replicate. That market leadership has historically given the company pricing power, allowing it to lift prices even when demand softens.
The expansion into outdoor living products also broadens its addressable market and creates opportunities to cross-sell products across its customer base.
Over time, management of James Hardie shares expects those benefits to support stronger margins and earnings growth.
Experts remain optimistic
Fund manager L1 Capital believes the recent rally may not be the end of the story. The firm noted James Hardie shares climbed 46% during the three months to June, helped by easing geopolitical tensions and management's constructive FY27 outlook.
L1 expects the company's core North American fibre cement business to return to volume growth, supported by normalising inventories, stronger execution in repair and remodel markets, gains among smaller builders, competitor exits, and continued conversion from vinyl and timber products.
Importantly, L1 believes the market is still valuing James Hardie at a discount because of lingering concerns over execution, governance, and the US housing cycle.
If those concerns continue to fade, the fund manager sees scope for both earnings growth and a higher valuation multiple.
The risks remain
The biggest risk for James Hardie shares is still the US housing market.
Demand for new homes and renovation activity remains sensitive to mortgage rates and consumer confidence. If higher interest rates continue weighing on housing, James Hardie's sales growth could slow.
After such a strong rebound, investors are also likely to demand continued earnings upgrades to justify further gains.
Foolish takeaway
James Hardie's latest earnings update has reminded investors why the company has long been regarded as one of the ASX's highest-quality industrial businesses.
While risks remain, particularly in the US housing market, improving execution and stronger-than-expected earnings suggest the recent rally of James Hardie shares could still have further room to run.
