SXYAY - Challenging Construction Markets And High Expectations Continue To Weigh On Sika

2024-06-14 17:04:40 ET

Summary

• Sika AG's stock has stagnated in response to stalled margin leverage and weak organic revenue growth, underperforming peers like RPM and St. Gobain.
• Management guidance for 6-9% organic revenue growth in 2024 could prove optimistic given weakness in multiple non-residential construction markets.
• Sika still offers above-average long-term growth potential given the labor- and resource-saving advantages of its products and its leverage to ESG retrofits.
• With what I see as risks to near-term guidance/expectations and a still-robust valuation, I'd prefer to revisit the name at a point where the risk-reward tradeoff looks better.

Robust valuation and weaker end markets are a dangerous combination, and so it has been for Sika AG (SXYAY) (SIK.S). Once a market darling due to its strong revenue growth and margin leverage, not to mention a good story around productivity-enhancing and environmentally-friendlier construction chemicals, margin leverage and organic revenue growth have stalled out, leading to a two-year period of the stock basically chopping around in a fairly wide range between CHF 200 and CHF 280....

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