About Builders FirstSource
It is quite safe to say that Builders FirstSource is one of those companies that plays a crucial role in the infrastructure of the United States.
It is also quite safe to say that Builders FirstSource is a little sensitive to general economic fluctuations, particularly in and around the housing market.
And by a little we mean a lot.
However, it makes sense that Builders FirstSource feels the pain that comes with the ebbing and flowing real estate sector as its primary line of business is in the manufacturing and selling of building components and other related materials that are eventually used in the construction of buildings and other structures all across the United States.
Additionally, Builders FirstSource, headquartered in Dallas, Texas, is apparently the largest supplier of building products, components and other value-added services and unlike some of its larger peers has grown a lot from acquisitions it has pursued and completed over the years. For example, some of the company’s more well known acquisitions include its buyout of ProBuild, Raney Components LLC, Raney Construction Inc. and Bianchi & Company, just to name a few.
Interestingly, our team at MacroHint has seen plenty of Builders FirstSource trucks lugging around items such as concrete, wood and other products that are critical to the structural integrity of buildings and houses.
This makes sense since there are a lot of people moving to Austin, Texas.
Suffice it to say this company serves an important role in society but it is still susceptible to real estate booms and busts, as there are plenty of homes and other development projects occurring in Austin alone, however, the bust will eventually rear its ugly head and projects will be halted or closed altogether depending on the severity of the demand bubble popping.
If fewer neighborhoods, municipalities and other developments are being pursued, there will naturally be less (hopefully only short-term) demand for Builders FirstSource’s products and offerings. Additionally, being a major supplier of building materials and equipment presents its own set of significant challenges, as this company is no stranger to commodity cost-related headwinds. An example of this could be the price of concrete as well as fluctuations in the costs associated with producing concrete, which surely is directly impacted by the cost of concrete itself, not to mention, again, the changing costs of the materials needed to make concrete.
Thankfully, we’re not all too unfamiliar with companies that are particularly sensitive to commodity price fluctuations.
Since there are inherent risks associated with investing in any company, it would be best if we checked up on Builders FirstSource and its financials to see how well this company can withstand both current and future headwinds as well as generate long-term returns for your personal investment portfolio.
Builders FirstSource’s stock financials
To kick things off, Builders FirstSource has a market capitalization of $10.57 billion, a price-to-earnings (P/E) ratio of 4.34, a share price of just south of $72 all while the company doesn’t currently administer an annual dividend to its shareholders.
Given this company’s price-to-earnings ratio, Builders’ stock is trading at a rather large discount, as its P/E is well below that of fair value, 20.
Additionally, we don’t have any major qualms with the company not currently offering shareholders an annual dividend as the industry it operates in is filled with fluctuating, variable costs that are sensitive to a multitude of factors, one of which in particular is the state of the economy as a whole as well as the real estate sector.
We’d want to be conservative with our capital too and not drain much (if at all) from the cash flow hose.
Nevertheless, the company’s present P/E ratio is certainly an initial positive but it wouldn’t be a stock analysis worth your time if we didn’t venture forth and see where this company can provide further value for its shareholders in the long run.
Let’s get acquainted with Builders FirstSource’s balance sheet.
The company’s executive team is tasked with handling and properly allocating approximately $10.7 billion in total assets along with around $5.9 billion in total liabilities.
Considering all of the aforementioned costs and prevailing volatility within the industrial, construction and real estate sectors, we’re more than satisfied with Builders FirstSource’s balance sheet, as its total assets are notably greater than the amount of its total liabilities, which is hardly ever a bad thing.
Moving right along to the company’s income statement, Builders FirstSource’s total annual revenue over the past handful of years has experienced general stability and consistency and then pop, there was 2021.
The company reported total revenue in the realm of $7 billion and $8 billion between the years of 2017 and 2020, however, its 2021 figure was reported as just under $20 billion, which is some material growth if we don’t say so ourselves.
Why the sudden, abrupt growth in total revenue?
One of the main presumed catalysts we see recently driving Builders’ total revenue growth is either the company fully acquiring another company and deriving a substantially higher amount of total revenue from the recent completion of the acquisition or simply a monstrous organic boost in the company’s business, which would make sense as the commercial real estate market has remained relatively strong over the last three years and with that, demand for Builders FirstSource’s operating capabilities and its products as well.
Either way, we don’t expect the company’s total revenue to stay at these elevated levels as the real estate sector is still in a fairly volatile, frothy state, however, in the long run, we would be far from surprised to see Builders’ total revenue continue to rise or stay at higher levels as demand for building materials overall rises over the next few decades.
Consistency or spurts of growth, we’re comfortable with the company’s recent total revenue figures.
Onto the company’s cash flow statement, Builders FirstSource’s net income has sung a tune similar to that of its recent revenue numbers, however, we were itching most to see whether or not the company’s net income and its total cash from operations was positive, which thankfully they both are.
Even amidst the turmoil surrounding the economy altogether (more broadly, outside of the real estate sector), we’re glad to see that the company’s executive team has retained its ability to produce positive cash flow on top of carving out cash from its operations, which even for a company as large as Builders FirstSource is no simple task.
Builders FirstSource’s stock fundamentals
From a profitability standpoint, Builders FirstSource gets the job done.
Namely, the company’s trailing twelve month (TTM) net profit margin stands at 12.2% compared to the industry’s average of 10.89%.
To us, this indicates that the industry it operates in is filled with competitors that can produce solid annual net profit margins, however, Builders FirstSource can do it just a little bit better than some of its building material supplier foes, likely due to its scale.
This is unequivocally a positive, especially as more and more dark clouds continue to envelope the economy.
Lastly, we’d like to take a look at the company’s core TTM returns, particularly on its assets and investment(s).
For instance, Builders FirstSource’s TTM return on assets and TTM returns on investment are pegged at 25.12% and 31.16%, respectively. For the sake of comparison to the industry and its average TTM returns on assets and investment, they stand at 3.51% and 15.49%, respectively as well.
This is another positive signal that implies that the company’s executives are making good and efficient use of its resources and that there are not only solid executives but also strategists at the helm of Builders FirstSource.
Should you buy Builders FirstSource stock?
Like other companies that we have written stock analysis articles on, having the gumption and long-term oriented view to put some money behind a company that has its fair share of sensitivities to the real estate sector and economy overall is required when considering investing in Builders FirstSource stock.
Barring that consideration, although it is an important one, this company and its stock have a lot going for it. Between its stock trading well below fair value, its executives crafting a recession prepared balance sheet, general consistency and recent growth in aggregate revenue and a strong trailing twelve month net profit margin, among other things, giving Builders FirstSource’s stock (NYSE: BLDR) a “buy” rating is not a difficult choice on our end.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.