Wood You Buy This Stock?

Lumber stocks aren’t particularly popular among retail investors or financial pros.

So, it was a bit surprising to see Boise Cascade LLC (BCC) receive 198 searches by financial pros in the last month.

That’s more than it saw for most of six months prior.

Lumber prices tumbled from their record highs in 2021.

Source: BCC Q4 2022 Presentation

While Boise Cascade pulled in record profits in 2022, revenues began to slip in Q4.

So is this stock with a stupidly cheap valuation worth the price or is it a value trap?

Boise Cascade’s Business

Boise Cascade Company manufactures wood products and distributes building materials in the United States and Canada. 

It operates through two segments noted in the slide below:

Source: BCC Q4 2022 Presentation

The company’s products range from specialty lumber and building materials to general lumber.

Source: BCC Q4 2022 Presentation

Financials

Source: Stock Analysis

Strong housing demand and lumber prices helped the company reach record revenues in 2022.

However, quarterly revenues have declined for three straight quarters, dropping from $2,326 million to $1,628 million. This also compressed margins, dropping gross margin from 25.6% to 20.9%.

Operational cash flow didn’t take as much of a hit, only going from $237 million to $227 million.

And overall, lumber prices appear to have stabilized as housing supply remains constrained.

Valuation

Source: Seeking Alpha

There aren’t many players in the space, and Enviva Inc. (EVA) actually makes wood pellets for power generation.

Nonetheless, we can see that BCC trades at very cheap valuations in terms of P/E, price-to-sales, and price-to-cash flow.

Growth

Source: Seeking Alpha

It is likely that revenues will continue to decline as lumber prices find a bottom. So it’s not surprising to see revenue declines forecasted for next year.

Nonetheless, the last few years have led to incredible growth that should continue with the acquisition of the Coastal Plywood Company in 2022 for $512 million and the BCC’s expansion into additional markets.

Profitability

Source: Seeking Alpha

BCC has done a fantastic job in terms of delivering high profitability across the board.

The return on equity, assets, and total capital are outstanding.

Our Opinion 10/10

Even if we see a more meaningful deterioration in lumber prices, the fundamentals suggest the worst is priced in.

That’s why with more cash than long-term debt on its balance sheets, a nice dividend, and a plan to buyback shares, we see a lot of long-term value here.

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