The S&P/ASX 200 Index (ASX: XJO) stock Reece Ltd (ASX: REH) has a market capitalisation of $11.14 billion. I think it could be a compelling investment after falling 21.41% since 21 February 2025 and 40.92% from 20 September 2024, as the chart below shows.

Reece is a plumbing and bathroom business with a major presence in both Australia and the southern states of the US.

The business had a rough period in the first six months of FY25. Revenue declined 3% to $4.4 billion (in constant currency terms), operating profit (EBITDA) declined 10% to $475 million, earnings before interest and tax (EBIT) fell 17% to $305 million, and net profit declined 19% to $181 million.

After seeing this result and the difficulties experienced by the business, I think the lower valuation is an appealing buy for a few reasons.

Expanding operations

Reece has 675 branches in ANZ (adding 14 new branches during the FY25 half-year period) and 261 in the US (adding 18 new locations in the HY25 period).

While the ASX 200 stock can't control macroeconomic conditions, it can lay the foundations for a stronger earnings recovery when conditions improve.

Expanding its geographic footprint is smart because it adds more potential for operating leverage. The company's results showed how a fall in revenue led to a larger decline in profit, so I'm expecting that when revenue rises again, it can lead to faster profit growth. In ANZ, the company said it's making ongoing investments in bolt-on acquisitions, additional locations, and upgrades.

Considering that ANZ has 675 locations and the US has 261 locations (with a much larger population), I think there's plenty of scope for the business to grow in the US and, hopefully, Australia, too.

Conditions to improve for the ASX 200 stock?

The company noted that housing construction activity has been soft in both the US and ANZ, with the macro headwinds "to continue" and the near-term remaining "challenging".

However, I don't think conditions will be weak forever. Interest rates in the US and Australia have reduced, and in a year or two, I think they could be even lower as long as inflation remains under control.

When there is a true recovery of economic conditions, I believe Reece could experience a pleasing rebound of profitability and investor sentiment.

There is increasing competition in the US, but I think the lower Reece share price more than makes up for that negative. With its strong position in Australia, I think the ASX 200 stock is an appealing investment for the long term at this lower valuation.

Using UBS' forecasts, the Reece share price is valued at 32x FY25's estimated earnings and 20x FY29's estimated earnings, which shows how profit is expected to rise significantly in the next few years.