It's been a great morning session for Builders FirstSource investors, who saw their shares rise 3.7% to a price of $133.4 per share. At these higher prices, is the company still fairly valued? If you are thinking about investing, make sure to check the company's fundamentals before making a decision.
Builders FirstSource Is Fairly Valued:
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 11.2 and a P/B ratio of 3.59.
When we divide Builders FirstSource's P/E ratio by its expected EPS growth rate of the next five years, we obtain its PEG ratio of -0.74. Since it's negative, the company has negative growth expectations, and most investors will probably avoid the stock unless it has an exceptionally low P/E and P/B ratio.
Growing Revenues With Increasing Reinvestment in the Business:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $7,725 | $7,280 | $8,559 | $19,894 | $22,726 | $18,531 |
| Gross Margins | 25% | 27% | 26% | 28% | 34% | 35% |
| Operating Margins | 5.0% | 5.0% | 6.0% | 12.0% | 17.0% | 14.0% |
| Net Margins | 3.0% | 3.0% | 4.0% | 9.0% | 12.0% | 10.0% |
| Net Income (MM) | $205 | $222 | $314 | $1,725 | $2,749 | $1,861 |
| Net Interest Expense (MM) | -$108 | -$110 | -$136 | -$136 | -$198 | -$181 |
| Depreciation & Amort. (MM) | $98 | $100 | $117 | $189 | $497 | $543 |
| Earnings Per Share | $1.76 | $1.9 | $2.66 | $8.48 | $16.82 | $13.08 |
| Diluted Shares (MM) | 117 | 117 | 118 | 203 | 163 | 79 |
| Free Cash Flow (MM) | $181 | $391 | $148 | $1,516 | $3,259 | $3,066 |
| Capital Expenditures (MM) | $101 | $113 | $112 | $228 | $340 | $452 |
| Net Current Assets (MM) | -$962 | -$1,118 | -$797 | -$1,944 | -$2,135 | -$2,786 |
| Long Term Debt (MM) | $1,546 | $1,277 | $1,597 | $2,978 | $2,978 | $3,670 |
| Net Debt / EBITDA | 3.32 | 2.62 | 1.84 | 1.14 | 0.68 | 1.15 |
Builders FirstSource has growing revenues and increasing reinvestment in the business, exceptional EPS growth, 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 irregular cash flows.
