Open a DOOR of Opportunity

Canadian-based Masonite International has been trading on the New York Stock Exchange since Sept. 9, 2013. It turned profitable in 2016 and has prospered since. From 2016 through 2022, earnings per share more than tripled. Per share sales almost doubled and cash flow was up about 136%. Total shares outstanding declined by around 24.4%, which helped those numbers gain so much. In the crazy market environment of 2022, though, DOOR declined from an April 2022 peak of $132.20 to as low as $65.71 in early October. While that was happening earnings per share jumped from $3.85 to an estimated $10 or so. Excellent multi-year growth would typically command a relatively high P/E. Instead DOOR now sells for a fraction of its typical multiple of 21.8-times. Continuous shareholders who didn't exit when Masonite was hot are now holding on to only about 33% six-year gains. That means there is plenty of already created value which, is not currently reflected in the stock price. What is DOOR worth? It depends to some degree on whose estimate you think is most accurate for 2023. Value Line is the most bullish on DOOR's year-ahead prospects. It sees $10.10 for the recently completed 2022 when Q4 results are reported in February. It then looks for further EPS gains to $11.20 this year and $15 not later than 2027. Based on their estimate DOOR was offered for just 7.2-times forward earnings on Jan. 3, 2023. That is less than half of its historical multiple. Simply reverting to a closer to average 15 price-to-earnings would justify a move to $168 by Dec. 31, 2023, if Value Line's estimate proves correct. That goal is not far-fetched. DOOR peaked at $109.80 to $132.20 during each of the past three years. The firm's fundamentals have never been better. There is every reason to believe the stock can experience multiple expansion from today's depressed level. Yahoo Finance takes a more conservative view on both 2023's EPS and how high the P/E might reach over the coming year. Its projected EPS for DOOR this year slip to $9.42. Even so, Yahoo calls the shares undervalued and expect a rebound to $106, about 32.6% above its Tuesday quote. That might well be too conservative, as it assumes DOOR only gets back to a very sub-par 11.3-times its somewhat pessimistic estimate. Fast Graphs calls about 17.7-times as DOOR's proper P/E. Its $8.75 estimate for DOOR this year is the lowest I've found. If Masonite only reaches 15-times that number, though, the stock could still be north of $131 by Dec. 31, 2023. That would deliver a solid 64.2% from today's price. Whomever you think will be most accurate, the bottom line is that DOOR is trading well below its true value. Option savvy traders can nibble at the edges with DOOR via short sales of its July 21, 2023 expiration date puts at $75 to $85 strike prices. Actual pricing on those, with DOOR at $79.97, are shown below. Worst-case, forced purchase prices dropped to between $68.30 and $73.80 providing decent downside protection on already cheap shares. Even the most aggressive, $85 put, provides a break-even point that would have been a winning position for all but a few weeks out of the most recent 28-months. Note, too, that EPS were just $2.77 in Covid-ravaged 2020, but rose to $3.85 in 2021 and to about $10 in 2022. All logic suggests DOOR is much more valuable today than when it fetched the much higher prices shown. Take advantage of the chance to own Masonite at one of its best valuations ever. Buy some shares, short some puts or consider doing both.

Open a DOOR of Opportunity

Here's how to play Canada-based Masonite International.

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