Among leading growth stocks, today's IBD 50 Stocks To Watch pick is building materials maker Builders FirstSource. The company reported earnings on Tuesday.
The leading manufacturer of structural and building products for residential construction has been working on a cup base with a 86.58 entry since early January. Shares pulled back alongside the market last month but just reclaimed the 50-day line on Wednesday.
The Dallas-based company is one of the largest U.S suppliers of building products. Builders FirstSource offers investors strong growth, with its double-digit and triple-digit year-over-year EPS and sales growth in recent quarters. Yet the stock could still be considered a value play with a P-E (price-to-earnings) ratio of only 7. Such a low P-E ratio alongside an EPS growth rate of 49%, according to MarketSmith, means Builders FirstSource may deliver serious gains at a relatively inexpensive price.
Earnings for the December-ended quarter were released on March 1 and showed the company exceeding analyst expectations.
The stock traded lower on Thursday, down around 1.5%, but is holding last week's net gain of over 3%. Currently, shares sit 12% below the proper buy point and have a little ways to go before the stock is actionable. But the relative strength line shows positive action in recent weeks as it closes in on new high territory.
Growth Stocks To Watch: Builders FirstSource
Builders FirstSource has shown five straight quarters of triple-digit EPS growth, on a year-over-year basis. The firm averaged earnings growth of 258% over the last five quarters. Meanwhile, revenue has averaged 136% growth for the last four quarters.
Year-over-year bottom-line growth came in at 116% in the most recent quarter, to $2.78 cents a share. This handily exceeded analysts' projections of $1.89 per share. Sales rose 83% to $4.6 billion. The company's annual EPS for 2021 came in at $10.32, up 227% from $3.15 in 2020. That is astounding growth.
"We achieved another quarter of double-digit core organic growth to conclude an outstanding year of above-market performance and record results in 2021," said Dave Flitman, CEO of Builders FirstSource in a recent news release.
The firm also remains optimistic about upcoming growth and expects strong demand from the single-family housing space. Customer growth from the single-family demographic increased 14.4% in the most recent quarter, while multifamily improved 6.7%. Builders FirstSource breaks its revenue sources down into three core segments: value-added products, specialized products such as roofing and insulation products, and lumber goods.
Value-added products, which make up the bulk of the company's revenue at 45% of the quarterly net sales, saw gains of 128.3% from the prior year. Meanwhile, lumber goods increased 60% year over year in quarterly net sales.
Despite the recent runup in growth for Builders FirstSource, investors should note that analysts expect an upcoming slowdown for 2022 and 2023. According to MarketSmith, EPS for 2022 is expect to drop slightly to $9.08 a share.
The stock, with its 95 Composite Rating, ranks the highest in the building construction products industry group by that metric and is tied with competitor Atkore for the No. 1 spot.
