Formerly known as BSL Holdings, Inc., Builders FirstSource, Inc. (BLDR - Get Rating) is one of the largest suppliers of building products in the United States. Strong residential market tailwinds from robust single-family home demand, combined with the company’s solid business model and strong historical growth have helped the stock gain 195.8% over the past year.

BLDR has maintained its trend of beating earnings estimates in yet another quarter. In its recently released fourth quarter earnings, the company delivered record sales and bottom-line performance, which we think positions it as a sustainable growth opportunity well into the future. Furthermore, a recent merger by BLDR,  and a bullish investor outlook on the housing market, should help it deliver exceptional returns in the near term.

Here are the factors that could help BLDR continue its upward trajectory:

Recent Merger Could Accelerate Growth

In January, BLDR and BMC Stock Holdings, Inc. completed a  merger  to create the nation’s premier building materials and services supplier. The combined companies’ sales  companies were  approximately $11.7 billion as of the 12  months ended September 30, 2020. As a result of this merger, the combined company will be operating under the name BLDR, with a network of approximately 550 distribution and manufacturing locations. This merger positions BLDR well to  expand its presence in the housing market.

Upswing in the Housing Market

The landscape for homebuilders is expected to be even more favorable this year. A combination of record-low mortgage rates and rising prices of existing homes is motivating house hunters nationwide to buy new homes. In fact, as more buyers are rushing to the suburbs seeking  extra space amid work-from-home requirements, the heightened demand for new houses is expected to continue. This favorable trend should generate robust demand for home building materials and services in the near term.

Solid Historical Growth

Over the years, BLDR’s growth rates have been  impressive. The company’s revenue has increased at a CAGR of 19.2% over the past five years and its EPS has increased at a CAGR of 98.5% over the past three years. BLDR’s net income has grown at a CAGR of 100.7% over the past three years. This impressive growth has helped the stock gain 402.9% over the past five years and 123.5% over the past three years.

Analyst Estimates Indicate Further Growth

Analysts expect BLDR’s EPS to rise 97.1% in the current quarter, and 10% next year. Moreover, its EPS is expected to grow at a rate of 18.8% over the next 5 years. BLDR’s revenue is expected to grow 105.5% in the current quarter, 69.5% in the current year, and 0.2% next year.

Impressive Quarterly Performance

BLDR’s net sales have increased 43.5% from their year-ago value to $2.5 billion in the fourth quarter ended December 31. Also, the company’s gross profit increased 40.4% year-over-year to $669.2 million. Its net income increased 238.2% from the prior-year quarter to $139.91 million, while its EPS rose 233.3% from the prior-year quarter to $1.20.

POWR Ratings Reflect Promising Outlook

BLDR has an overall B rating, which equates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. Among these categories, BLDR has a B grade for Momentum, given the company’s impressive price performance over the past year.

In terms of Growth Grade, BLDR has an A, which is in sync with the company’s impressive historical and expected revenue and earnings growth.

Furthermore,  it has a B grade  for Value. BLDR’s non-GAAP p/e ratio of 18.32x is 19.6% lower than the industry average  22.78x.

BLDR is currently ranked #16 of 63 stocks in the A-rated Home Improvement & Goods industry. In addition to the grades I’ve highlighted, you can check out BLDR’s POWR Ratings for Sentiment, Stability, and Quality here.

If you’re looking for other top-rated stocks in the Home Improvement & Goods industry, with an Overall POWR Rating of A or B, you can access them here.

Bottom Line

We believe BLDR’s transformational merger with BMC Stock Holdings to create the nation’s premier supplier of building materials, along with favorable market tailwinds, should help the company drive additional growth and leverage the strength of its balance sheets in the near term. In addition, the company’s strong financials, impressive historical as well as expected earnings and revenue growth make it a great growth pick right now.

Want More Great Investing Ideas?

11 Top Stocks for March 2021

9 “MUST OWN” Growth Stocks for 2021

How to Ride the 2021 Stock Market Bubble

5 WINNING Stocks Chart Patterns

BLDR shares were trading at $45.74 per share on Tuesday afternoon, down $1.28 (-2.72%). Year-to-date, BLDR has gained 12.08%, versus a 6.16% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

More Resources for the Stocks in this Article