Building Product Distributors still offer plenty of upside
Industrials
Many market participants are looking for a way to play housing and it would be easy to look at building product distributors and write them off as being overvalued and that you’ve missed out. However, TRG believes this is faulty logic. Builders FirstSource, Beacon Roofing and GMS (as well as others) have margin profiles that have risen to comparable or superior levels in relation to the “premium-valued group” (SiteOne, Pool, Leslie's, Core & Main and Ferguson), but have EV/EBITDA multiples (avg. 10.6x) well below these stocks (avg. >20x). If they gain a more appropriate multiple (for strong SF starts and better margins) on higher EBITDA, then all three companies still offer significant (~70%) upside.
Edition: 183
- 05 April, 2024