3 Reasons BLDR is Risky and 1 Stock to Buy Instead

Builders FirstSource’s stock price has taken a beating over the past six months, shedding 31.8% of its value and falling to $97.70 per share. This was partly driven by its softer quarterly results and might have investors contemplating their next move.

Is now the time to buy Builders FirstSource, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.

Why Do We Think Builders FirstSource Will Underperform?

Despite the more favorable entry price, we don't have much confidence in Builders FirstSource. Here are three reasons there are better opportunities than BLDR and a stock we'd rather own.

1. Revenue Tumbling Downwards

Long-term growth is the most important, but within industrials, a stretched historical view may miss new industry trends or demand cycles. Builders FirstSource’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 5.7% over the last two years.

2. EPS Took a Dip Over the Last Two Years

While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.

Sadly for Builders FirstSource, its EPS declined by more than its revenue over the last two years, dropping 31.4%. This tells us the company struggled to adjust to shrinking demand.

3. New Investments Fail to Bear Fruit as ROIC Declines

ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Builders FirstSource’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Final Judgment

Builders FirstSource falls short of our quality standards. Following the recent decline, the stock trades at 16.8× forward P/E (or $97.70 per share). While this valuation is reasonable, we don’t see a big opportunity at the moment. There are better investments elsewhere. We’d recommend looking at the most entrenched endpoint security platform on the market.

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