Today we're going to take a closer look at large-cap Consumer Discretionary company Builders FirstSource, whose shares are currently trading at $146.71. We've been asking ourselves whether the company is under or over valued at today's prices... let's perform a brief value analysis to find out!
A Very Low P/E Ratio but Trades Above Its Graham Number:
Builders FirstSource, Inc., together with its subsidiaries, manufactures and supplies building materials, manufactured components, and construction services to professional homebuilders, sub-contractors, remodelers, and consumers in the United States. The company belongs to the Consumer Discretionary sector, which has an average price to earnings (P/E) ratio of 22.33 and an average price to book (P/B) ratio of 3.12. In contrast, Builders FirstSource has a trailing 12 month P/E ratio of 9.1 and a P/B ratio of 4.15.
When we divideBuilders FirstSource's P/E ratio by its expected five-year EPS growth rate, we obtain a PEG ratio of 0.78, which indicates that the market is undervaluing the company's projected growth (a PEG ratio of 1 indicates a fairly valued company). Your analysis of the stock shouldn't end here. Rather, a good PEG ratio should alert you that it may be worthwhile to take a closer look at the stock.
Growing Revenues With Increasing Reinvestment in the Business:
| 2020-02-21 | 2021-02-26 | 2022-03-01 | 2023-02-28 | |
|---|---|---|---|---|
| Revenue (MM) | $7,280 | $8,559 | $19,894 | $22,726 |
| Gross Margins | 27.2% | 26.0% | 29.4% | 34.1% |
| Operating Margins | 5.4% | 6.4% | 12.0% | 16.6% |
| Net Margins | 3.05% | 3.66% | 8.67% | 12.1% |
| Net Income (MM) | $222 | $314 | $1,725 | $2,749 |
| Net Interest Expense (MM) | -$110 | -$136 | -$136 | -$198 |
| Depreciation & Amort. (MM) | -$100 | -$117 | -$547 | -$497 |
| Earnings Per Share | $1.9 | $2.66 | $8.39 | $16.09 |
| EPS Growth | n/a | 40.0% | 215.41% | 91.78% |
| Diluted Shares (MM) | 117 | 118 | 206 | 128 |
| Free Cash Flow (MM) | $610 | $364 | $1,958 | $3,929 |
| Capital Expenditures (MM) | -$106 | -$104 | -$214 | -$329 |
| Net Current Assets (MM) | -$1,118 | -$797 | -$1,944 | -$2,135 |
| Current Ratio | 1.59 | 2.07 | 1.86 | 1.9 |
| Long Term Debt (MM) | $1,277 | $1,597 | $2,926 | $2,978 |
| Net Debt / EBITDA | 3.45 | 2.55 | 1.53 | 1.11 |
Builders FirstSource has growing revenues and increasing reinvestment in the business and exceptional EPS growth. Additionally, the company's financial statements display generally positive cash flows and healthy leverage. However, the firm suffers from slimmer gross margins than its peers and weak operating margins with a positive growth rate. Finally, we note that Builders FirstSource has a decent current ratio.
