Builders Firstsource – A Great Way to Play Housing

In yesterday’s issue of the Spill, we discussed Bluelinx Holdings and why we liked the stock.

When we pulled the top building products stocks, at the head of the list was Builders Firstsource. It heavily searched by retail investors garnering nearly twice as many searches as the #2 slot.

Once we dug into the stock, we found a compelling case for the company.

We know home prices are at historic levels. And we’re seeing shortages in every type of construction material out there.

And it’s not just housing.

Rents increased by 40% year over year in Austin, and 15% nationwide, according to data collected by Redfin. 

Now, you don’t need to own property to take advantage of this latest trend. In fact, investing in a company poised to benefit the boom in commodity prices and real estate is on the table. 

And that’s why we like Builders FirstSource (BLDR) so much right now. 

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Find out now what stock we’re talking about.

Builders FirstSource Business

Headquartered in Dallas, Texas, Builders FirstSource is the largest U.S. supplier of building products, prefabricated components, and value-added services to the professional builder. 

The firm has approximately 565 distribution and manufacturing locations, a presence in 42 states and 85 of the top 100 metropolitan statistical areas.  

Financials

BLDR experienced explosive growth last year, as it saw its yearly revenues spike to nearly $20B, a rise of 132% year over year. Its net income also skyrocketed 450% y/y change, at $1.73B. 

When you dig into the balance sheet you’ll notice that BLDR is financially stable. Its current ratio is 1.86. In other words its short-term assets are 1.86X the short-term liabilities. 

And with a quick ratio of 1.04, we can confidently say that it has no cash concerns in the short-term. 

And while its sales resemble that of a growth stock, its P/E ratio is reasonable at 9.2—a metric more investors are concerned about as the Fed continues to raise interest rates to combat inflation. 

Valuation

At a 9.2 P/E ratio, BLDR is relatively cheap. The P/E ratio is .62 times the relative sector’s PE ratio, which one could argue makes the stock undervalued. 

Furthermore, if you compare BLDR’s current P/E ratio to its 5-year average, the current share price should be north of $145. 

Analyst’s on the street have an average price target of $100.36. 

And when compared to its competitor it beats them in several key valuation metrics including price/sales, price/cash flow, and price to book.

Our Opinion – 8/10

Builders FirstSource, Inc has demonstrated it can grow fast under these market conditions. 

Given the current threat of inflation, the boom we’re seeing in real estate and commodities, we believe this stock will outperform the overall market like it did last year.