Down 30%, are CRH shares a screaming buy?

The CRH share price has slumped this year. Roland Head asks if this overlooked FTSE 100 share could be a bargain right now.

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I’ve never owned shares in FTSE 100 construction materials group CRH (LSE: CRH). But for the first time in my investing career, I’m starting to get interested in CRH shares right now.

The CRH share price has fallen by 25% over the last year and is now 30% down from the record highs seen in late 2021. This slump has left the stock trading on just 10 times earnings, with a forecast dividend yield of 4%. I reckon it could be cheap.

As an income investor I’m always interested in stocks with dividend yields above the FTSE 100 average (which is currently 3.7%). Should I think about buying CRH shares for my portfolio?

Why I’m interested

Although CRH is often thought of as a cement business, it also supplies other staple materials such as aggregates, tarmac, paving, and concrete.

CRH operates globally through a range of regional brands, many of which have a big share of their local markets. In the UK, the group’s best-known brand is probably Tarmac.

Although some of CRH’s products have a hefty carbon footprint, I reckon they’re all an essential part of modern life. Fortunately, CRH is actively working to make its business more sustainable. The company aims to reduce carbon emissions by 25% by 2030 and to hit net zero by 2050.

In the meantime, I’m interested to see that CRH is expanding its product range into markets where it might be able to add more value. One area the company is targeting is “sustainable outdoor living solutions in North America”. Examples include paving and fencing.

My guess is that products aimed at the residential market could carry higher profit margins than standard construction supplies.

Recessions risk?

News headlines are full of the ‘R’ word at the moment. Recession.

A big recession in western markets could see global construction activity fall. That would be bad news for CRH, whose quarries and cement plants could see a slump in demand.

I don’t expect a major market crash like we had in 2008/9. But I think there’s a fair chance we’ll see some kind of slowdown over the next year or so, especially with interest rates rising.

Higher interest rates are likely to make new commercial property more expensive to build, as major projects are generally funded with debt.

Are CRH shares cheap enough to buy?

Overall, I think CRH is quite a good business. I’d consider buying the shares at the right price. But are we there yet?

CRH shares have now given up five years’ gains and are back where they were in 2017. But the company’s profits are around 20% higher than in 2017. For now, at least, CRH shares are cheaper than they’ve been for quite a few years.

On the other hand, I think the risk of a recession is probably higher than it’s been for quite a few years.

On balance, I think CRH shares look quite reasonably priced at the moment. But this business has quite high costs and fairly average profit margins. Ideally, this is a stock I’d like to buy at a rock-bottom valuation. I don’t think that’s true today, so for now I’m going to keep watching.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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