On September 21, 2023, Builders FirstSource Inc (BLDR, Financial) registered a day's loss of -4.72 %, marking a 3-month loss of -6.25%. With an Earnings Per Share (EPS) of 13.13, the question arises - is the stock significantly overvalued? This article aims to provide a comprehensive valuation analysis of Builders FirstSource (BLDR) to answer this question. Stick around for an in-depth exploration.
Company Introduction
Builders FirstSource Inc is a renowned manufacturer and supplier of building materials, offering a wide range of structural and related building products. The company's offerings include factory-built roof and floor trusses, wall panels and stairs, vinyl windows, custom millwork and trim, and engineered wood. These products are designed individually for each home and installed by Builders FirstSource. The company's construction-related services include professional installation, turn-key framing, and shell construction, catering to a diverse customer base ranging from large production builders to small custom homebuilders.
At a stock price of $121.16, Builders FirstSource (BLDR, Financial) has a market cap of $15.10 billion. However, the GF Value, an estimation of the fair value, stands at $80.97, suggesting that the stock might be significantly overvalued. The following sections delve deeper into the company's value, intertwining financial assessment with essential company details.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, computed based on historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at.
Builders FirstSource (BLDR, Financial) appears to be significantly overvalued based on the GF Value. If a stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it's significantly below the GF Value Line, its future return will likely be higher. Given Builders FirstSource's current price of $121.16 per share and a market cap of $15.10 billion, it seems to be significantly overvalued.
Due to this overvaluation, the long-term return of Builders FirstSource's stock is likely to be much lower than its future business growth.
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Financial Strength
Checking the financial strength of a company is crucial before buying its stock. Investing in companies with poor financial strength poses a higher risk of permanent loss. A great way to understand a company's financial strength is by looking at its cash-to-debt ratio and interest coverage. Builders FirstSource has a cash-to-debt ratio of 0.02, which is worse than 96.88% of 1605 companies in the Construction industry. The overall financial strength of Builders FirstSource is 6 out of 10, indicating that it's fair.
Profitability and Growth
Investing in profitable companies, especially those demonstrating consistent profitability over the long term, poses less risk. Builders FirstSource has been profitable 8 over the past 10 years. Over the past twelve months, the company had a revenue of $18.50 billion and an Earnings Per Share (EPS) of $13.13. Its operating margin is 13.95%, which ranks better than 84.18% of 1631 companies in the Construction industry. Overall, GuruFocus ranks the profitability of Builders FirstSource at 8 out of 10, indicating strong profitability.
Growth is a crucial factor in a company's valuation. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Builders FirstSource is 30.7%, which ranks better than 92.02% of 1554 companies in the Construction industry. The 3-year average EBITDA growth rate is 83.8%, which ranks better than 96.29% of 1322 companies in the Construction industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to 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 is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Builders FirstSource's ROIC was 21.56, while its WACC came in at 11.44.
Conclusion
In conclusion, the stock of Builders FirstSource (BLDR, Financial) appears to be significantly overvalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 96.29% of 1322 companies in the Construction industry. For more information about Builders FirstSource stock, you can check out its 30-Year Financials here.
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