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What You Need to Know before Investing in Paint Companies

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What motivates people to paint a residence?

The attractions for painting a residential area are hard to miss. Whether old or new, painting is a cost-effective way to build up the value of your house. Even when it’s not for sale, the aesthetic appeal of new paint on a house is a strong motivator for repainting, making it a recurring activity. However, the utility of paints is not just restricted to fashion. By protecting exterior walls from inclement weather and normal wear and tear, they provide function too.

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Among major specialty chemical (XLB) companies, Valspar (VAL) generated $1.6 billion—40% of its total revenues—and RPM Industries (RPM) earned $1.6 billion, or 34.9% of its total 2015 revenues, from their consumer segments that sell paints. By comparison, Sherwin-Williams (SHW) reported that its paint stores group generated $7.2 billion, or 63.7% of its total revenues, from this segment. Sherwin-Williams sells other products such as floor coverings and paint equipment in its paint stores.

Classifying paint

Based on the type of solvent used, paint products in the specialty chemicals industry (VAW) are classified as either water-based or oil-based. As implied by their name, most of the liquid portion of water-based paint is water, while liquid portions of oil-based paints are majorly petroleum distillates and other organic solvents.

Organic chemicals are referred to as VOCs (volatile organic compounds) as they have a very high vapour pressure, resulting in their evaporation and contamination of the surrounding air. Some VOCs are extremely dangerous to the environment as well as human health, and these dangers have given rise to increasing regulations around the world as efforts to limit VOC content in paints. Rising regulations have resulted in a definite shift in the industry toward greater sale and consumer adoption of water-based paints.

Paint characteristics matter

Water-based paints offer benefits including quick drying capabilities, easy clean up with soap and water, and high resistance to cracking. They are, therefore, used more frequently for wall painting applications. Oil based paints, on the other hand, have excellent adhesive characteristics, imparting a tight grip and an attractive glossy finish to surfaces. So despite the above-mentioned regulations on VOCs, oil-based paints are preferred for demanding surfaces and glossy woodwork such as doors and furniture.

Continue to the next part for a look at paint companies’ margins.

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