Saturday, 11 May 2024

Why Shares in This Value Stock Declined This Week

by BD Banks

Shares in electrical products company Atkore (NYSE: ATKR) declined by 8% in the week to 11 a.m. ET Friday. The decrease occurred in a week when the company reported disappointing second-quarter earnings.

It’s no secret that Atkore’s sales will be challenged this year due to the price correction of commodities such as steel and PVC, which will lower prices. Just as Atkore benefits from passing on raw material price increases to its customers, so does its revenue decline as its selling prices do.

Atkore’s second-quarter earnings

The decline is apparent from the company’s recent earnings:

  • Electrical net sales declined by $90.1 million to $590.8 million, with $87.1 million due to lower pricing and a reduction in sales volume accounting for $3.8 million
  • Safety & industrial net sales declined by $12.6 million to $202.4 million, with lower volumes accounting for $3.7 million, an increase in selling prices of $1.6 million, and “economic value of solar tax credits to be transferred to certain customers of $10.8 million”

While the decline in selling prices in the electrical segment is understandable, it’s slightly disappointing that volumes declined in both segments.

What management said

Management referred to the construction market as containing “near-term challenges to growth,” and CEO William Waltz noted that if the expected second-half improvement in the electrical segment doesn’t occur on the back of stronger construction activity, “The pricing environment could be challenged in the second half of 2024.”

Something to look out for.

Why Shares in This Value Stock Declined This Week

Image source: Getty Images.

A good value option

Trading on less than 10 times estimated earnings for 2024 , Atkore remains a good value option for investors. A stabilizing in the construction market, possibly instigated by lower interest rates later in the year, will see volumes pick up again. The comparisons with raw materials prices could get easier in 2024 due to the declines in 2023. It all speaks to Atkore being a decent stock to buy on a risk/reward basis.

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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.