Exploring Builders FirstSource (BLDR) Stock Decline & Valuation – An In-depth Analysis

Builders FirstSource was one of the market's biggest losers today, losing 5.1% of its value and underperforming both the S&P500 and Dow Industrial composite indices by 1.0%. The large-cap Consumer Discretionary company ended the day at $112.16, but is still well above its 52 week low of $53.79 and is 34.46% below its average target price of $171.13. Over the last 12 months, Builders FirstSource is up 99.0%, and has outperformed the S&P 500 by 81.0%. The stock has an average analyst rating of buy.

Builders FirstSource has a trailing 12 month price to earnings (P/E) ratio of 8.6, which corresponds to its share price divided by its trailing earnings per share (EPS) of $13.07. The company's forward P/E ratio is 9.4 based on its forward EPS of $11.96.

Earnings refer to the net income of the company from its sales operations, and the P/E ratio tells us how much investors are willing to pay for each dollar of these earnings. By way of comparison, the Consumer Discretionary sector has historically had an average P/E ratio of 22.33. Whether the company's P/E ratio is within a high or low range tells us how investors are currently valuing the stock's earning potential, but it doesn't tell us how its price will move in the future.

Another metric for valuing a stock is its Price to Book (P/B) Ratio, which is its share price divided by its book value per share. The book value refers to the sum of all of the company's tangible assets and liabilities. Builders FirstSource's P/B ratio of 3.23 indicates that the company is fairly valued when compared to the Consumer Discretionary sector's average P/B ratio of 3.12.

To understand Builders FirstSource's business, and therefore its attractiveness as a potential investment, we must analyze its margins in two steps. First, we look at its gross margins, which take into account only the direct cost of providing the product or service to the customer. This enables us to determine whether the company benefits from an advantageous market position:

Date Reported Revenue ($ k) Cost of Revenue ($ k) Gross Margins (%) YoY Growth (%)
2023-02-28 22,726,418 -14,982,039 34 21.43
2022-03-01 19,893,856 -14,042,900 28 7.69
2021-02-26 8,558,874 -6,336,290 26 -3.7
2020-02-21 7,280,431 -5,303,602 27 8.0
2019-03-01 7,724,771 -5,801,831 25 0.0
2018-03-01 7,034,209 -5,306,818 25
  • Average gross margins: 27.5 %
  • Average gross margins growth rate: 0.0 %
  • Coefficient of variability (lower numbers indicate more stability): 12.3 %

Next, we consider the Builders FirstSource's operating margins, which take into account overhead. This tells us whether the company's business model is fundamentally profitable or not:

Date Reported Total Revenue ($ k) Operating Expenses ($ k) Operating Margins (%) YoY Growth (%)
2023-02-28 22,726,418 -3,974,173 17 41.67
2022-03-01 19,893,856 -3,463,532 12 100.0
2021-02-26 8,558,874 -1,678,730 6 20.0
2020-02-21 7,280,431 -1,584,523 5 0.0
2019-03-01 7,724,771 -1,553,972 5 25.0
2018-03-01 7,034,209 -1,442,288 4
  • Average operating margins: 8.2 %
  • Average operating margins growth rate: 26.8 %
  • Coefficient of variability (lower numbers indicate more stability): 63.6 %

Since both Builders FirstSource's gross margins and operating margins tend to be positive, we know that its business is currently profitable. However, it's important to take into account their variability and overall growth trend to make a definitive conclusion regarding the company's strength.

Our final point of analysis is Builders FirstSource's free cash flow. While earnings and margins are calculated on the basis of a company's delivered goods, they do not actually represent physical payments that flow into the coffers. The actually money that the company has -- minus its capital expenditures -- is reported as its free cash flow, which for Builders FirstSource is as follows:

Date Reported Cash Flow from Operations ($ k) Capital expenditures ($ k) Free Cash Flow ($ k) YoY Growth (%)
2023-02-28 3,599,231 -329,465 3,928,696 100.66
2022-03-01 1,743,549 -214,331 1,957,880 438.4
2021-02-26 260,067 -103,582 363,649 -40.42
2020-02-21 504,046 -106,325 610,371 60.84
2019-03-01 282,830 -96,658 379,488 59.48
2018-03-01 178,528 -59,426 237,954
  • Average free cash flow: $3.93 Billion
  • Average free cash flow growth rate: 0.0 %
  • Coefficient of variability (lower numbers indicating more stability): 1414958345.5%

Free cash flow represents the money that Builders FirstSource can use to either reinvest in the business or to reward its investors in the form of a dividend. Despite the company's recent cash flows being in the green, investors do not currently receive a dividend.

Overall, Builders FirstSource seems to be a strong business with an attractive valuation in numeric terms. Potential investors may want to take a closer look at the stock, and focus on whether it also has qualitative factors that show that it can provide solid returns.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.