West Fraser Timber (TSX:WFG) is trading about 16% lower over the past year, and for some investors, that kind of drop might look like a bargain. But for me, this one isn’t even close to making my buy list right now. The Canadian stock has been struggling with headwinds that aren’t just short-term blips, and while management is talking about long-term opportunities, the near-term reality looks rough.
What happened
The Canadian stock’s latest quarter showed sales of $1.5 billion, but that still wasn’t enough to keep it in the black. West Fraser posted a $24 million loss, or $0.38 per share, down sharply from a $42 million profit in the previous quarter. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) dropped from $195 million in Q1 to just $84 million. For a cyclical business, you expect some earnings swings, but this is a steep one in just three months.
The core problem is demand. In its North American engineered wood products segment, which has been a key earnings driver in stronger markets, sales slowed as the spring building season came in weaker than expected. The U.S. housing market is still feeling the pinch from affordability issues, even as mortgage rates ease. And when new construction slows, companies like West Fraser feel it right away. Repair and remodelling can soften the blow, but that segment isn’t enough to fully offset the decline in fresh builds.
The other issue is tariffs. Canadian softwood lumber exports to the U.S. have been under pressure for years, but now there’s a fresh Section 232 investigation that could lead to more duties. While the impact is still unknown, the uncertainty alone makes long-term planning harder. Management says it’s ready to be flexible and control costs, but these external factors can crush margins no matter how efficient operations are.
What to consider
On paper, the Canadian stock might look cheap. Its forward price-to-earnings (P/E) is about 16, and it trades below book value. But when profitability is this volatile and revenue is down 10% year over year, valuation multiples lose a lot of their usefulness. The trailing P/E is over 50, which tells you earnings have been inconsistent. The 1.8% dividend isn’t exactly enough to make up for that risk, especially since the payout ratio is above 70%.
Some will argue the long-term story is still attractive. West Fraser points to an aging U.S. housing stock, a large wave of younger buyers entering the market, and growing adoption of mass timber in industrial and commercial builds. All of those trends could, in theory, boost demand for lumber and engineered wood products. But that’s a “maybe in a few years” thesis. Right now, the business is facing a soft construction market in both North America and Europe, and there’s no guarantee that interest rate cuts will spark a quick turnaround.
It’s also worth noting that West Fraser has been actively buying back shares, with over a million repurchased so far in 2025. While that can signal management’s confidence, it can also eat into liquidity when earnings are under pressure. The balance sheet is still strong, with $646 million in cash and relatively low debt, but I’d rather see that capital deployed in ways that directly address the demand slowdown, like upgrading mills or diversifying product lines faster.
Bottom line
There’s nothing wrong with holding off on a Canadian stock until the story improves, and that’s exactly where I stand here. The cyclical nature of lumber means West Fraser could have some very good years ahead, but catching that cycle too early can lead to dead money in a portfolio. Until there’s a clearer sign that housing demand is rebounding and trade issues are easing, I’ll be keeping my capital in businesses with steadier earnings, more attractive yields, and catalysts that are already in motion.
In other words, West Fraser might not be a bad company; it’s just not the right Canadian stock for me right now. The building products sector has its opportunities, but this one still has too many moving pieces for my liking. I’d rather miss the first 20% of a recovery and buy when the fundamentals are on the upswing than jump in now and risk another leg down. Sometimes, sitting on the sidelines is the smarter move.
