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Is Ferguson stock a buy right now?

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  • Ferguson reported that their revenue dropped 0.9% to $21.8 billion during 12 months to July 31
  • The group said it plans to pay the last dividend of $2.08 after reporting “better than expected trading”
  • Shares have gained over 110% since March to log fresh record highs this morning

Shares of Ferguson PLC (LON: FERG) printed a fresh record high today after the plumbing giant said it will resume its final dividend payments in spite of a pandemic-induced profit decline.

Fundamental analysis: Final dividend resumed

Ferguson reported that their revenue dropped 0.9% to $21.8 billion during 12 months to July 31, compared to $22bn in the same period year ago. The plumbing giant retained its revenue growth on a permanent basis and increased trading profit ahead of revenue in the face of lockdown restrictions in the second half of the year.

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Profit before tax plunged by 4.8% to £1.26bn, down from $1.3bn last year. Total basic earnings per share plummeted by 11.2% year-over-year to $4.28, compared to  $4.81 from year-ago.

Nevertheless, Ferguson said it had “excellent operating cash generation” and retained a stable balance sheet and liquidity position.

As a result, the group said it plans to pay the last dividend of $2.08 after reporting “better than expected trading”. Ferguson said it paid a final dividend of $1.45 last year, but pulled out its interim dividend and halted a $500m stock buyback in April after the pandemic outbreak.

The company pointed out it stayed “cautious on the outlook for the year” ahead but assured investors it’s in a good position to withstand another fallout. It said it produced “strong and resilient” results for the full year in the face of several months-long lockdowns.

In the second half of the year, the business impact was significant, the group said, pushing it to take immediate measures to preserve capital flow and reinforce finances. 

Technical analysis: New record highs

Ferguson stock price exceeded the 8000p mark this morning to print a fresh record high. Shares have gained over 110% since March to burst through the previous record high set in February this year. 

Ferguson stock chart (TradingView)

Given that the company expects to continue to execute strongly in the coming quarters, there’s no reason not to invest in the stock. The only concerns from our side is a high valuation given that the stock trades at record highs. 

A monthly close above 7700p, which is likely to happen, will pave the way for higher levels. The next target for the buyers is 8790p, where the 127.2% Fibonacci extension line is located. Any pullback from these levels should be considered as a buying opportunity.

Summary

Ferguson, one of the largest distributors of plumbing supplies in the world, said it will continue paying dividends on Tuesday even after taking a hard hit from the coronavirus. Shares rose to a record high over 8000p early this morning.