The company has lurched from disaster to disaster over the past five years. As a result, investor sentiment has plunged.
From a price of nearly 1,500p just three years ago, the stock is now changing hands at a shade under 50p, its lowest level since the company’s IPO in 1996.
Granted, the group is still trying to work through some severe problems. However, I think this could be an excellent opportunity to buy this business at a discount price. Today, I’m going to explain why.
Kier share price value
In 2017, the construction group was flying high. Profits were rising, balance sheet looked clean, and management was able to pay a hefty annual dividend of 66p to investors.
Unfortunately, over the next few years, the company’s growth story started to unravel. Cost overruns caused losses to spiral and concerns about its balance sheet began to surface.
Management had to act quickly to stabilise the enterprise. The company tapped shareholders for extra cash, slashed costs and sold assets. It seems as if these initiatives have paid off.
The company is now on a much more stable footing than it was two years ago. But this isn’t reflected in the Keir share price. Investors have continued to sell the stock despite its improving fundamentals.
I think it may be worth taking advantage of this disconnect. City analysts are expecting the company to report a net profit of £59m for fiscal 2021, that’s around 33p per share. This puts the Kier share price on a forward price-to-earnings (P/E) multiple of 1.4. No matter what one thinks the business, that’s dirt cheap.
At the same time, as one of the largest construction groups in the country, Kier could benefit in the years ahead from government stimulus.
Boris Johnson as already said the UK would spend £100bn over the next few years on infrastructure projects. Keir could be one of the primary beneficiaries of this. That suggests the company’s sales could grow steadily in the years ahead. Even without the additional spending, the firm has the potential to earn steady profits based on its past performance.
Several years of profitability and cash generation will alleviate concern about the company’s balance sheet. This would, hopefully, lead to improved investor sentiment towards the business. The Keir share price should increase in value as a result.
Even a slight improvement could lead to significant returns for investors. Indeed, the UK construction sector is trading at an average P/E of 8. Even if Keir’s valuation was just half of this average, the stock could rise by more than 150% from current levels, according to my calculations.
That’s why I believe the Kier share price could be one of the best opportunities on the market today, considering the company’s outlook and recent progress in reducing costs.
Rupert Hargreaves 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.