Builders FirstSource Inc (BLDR, Financial) experienced a -5.57% loss on October 12, 2023, and a -7.22% loss over the last three months. Despite its Earnings Per Share (EPS) standing at 13.13, the stock appears to be significantly overvalued. This article will delve into the valuation analysis of Builders FirstSource (BLDR), providing valuable insights for investors.
Company Introduction
Builders FirstSource Inc is a key player in the building materials manufacturing and supply industry. The company specializes in structural and related building products like factory-built roof and floor trusses, wall panels, stairs, vinyl windows, custom millwork and trim, and engineered wood. These products are tailored to individual homes and installed by Builders FirstSource. The company also offers construction-related services, including professional installation, turn-key framing, and shell construction. Its clientele ranges from large production builders to small custom home builders.
With the current stock price at $118.69 per share, the market cap stands at $14.80 billion. However, according to the GuruFocus Value, the fair value of the stock is estimated at $81.39, indicating that the stock might be significantly overvalued.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, computed considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line denotes the stock's ideal fair trading value. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.
Given the current market conditions, Builders FirstSource (BLDR, Financial) appears to be significantly overvalued. The long-term return of its stock is likely to be much lower than its future business growth due to this overvaluation.
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Financial Strength
Before investing, it's crucial to assess the financial strength of a company. Companies with poor financial strength pose a higher risk of permanent loss. The cash-to-debt ratio and interest coverage provide great insights into a company's financial strength. Builders FirstSource has a cash-to-debt ratio of 0.02, which is worse than 97.06% of 1600 companies in the Construction industry. The overall financial strength of Builders FirstSource is 6 out of 10, indicating fair financial strength.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. Builders FirstSource has been profitable 8 out of the past 10 years. Over the past twelve months, the company had revenue of $18.50 billion and Earnings Per Share (EPS) of $13.13. Its operating margin is 13.95%, which ranks better than 84.24% of 1624 companies in the Construction industry. Overall, the profitability of Builders FirstSource is ranked 8 out of 10, indicating strong profitability.
Growth is a crucial factor in a company's valuation. According to GuruFocus research, long-term stock performance is closely correlated with growth. Builders FirstSource's average annual revenue growth is 30.7%, which ranks better than 92.07% of 1551 companies in the Construction industry. The 3-year average EBITDA growth is 83.8%, which ranks better than 96.36% of 1317 companies in the Construction industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, Builders FirstSource's ROIC was 21.56 while its WACC came in at 11.61.
Conclusion
In conclusion, Builders FirstSource's stock appears to be significantly overvalued. The company's financial condition is fair, its profitability is strong, and its growth ranks better than 96.36% of 1317 companies in the Construction industry. To learn more about Builders FirstSource stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
