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5 Stocks to Buy in a Prospering Retail Building Products Industry
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The Zacks Building Products – Retail industry has been gaining from consumers’ continued inclination toward home renovation and maintenance activities, leading to strong demand trends. The rapid urbanization and favorable trends in the housing market are added advantages. The companies in the industry are expected to gain from investments in omni-channel capabilities for meeting demand, execution of strategies and acquisitions.
Continued innovation and e-commerce expansion, and strong demand are likely to benefit industry participants like Lowe’s Companies Inc. (LOW - Free Report) , Fastenal Company (FAST - Free Report) , Builders FirstSource, Inc. (BLDR - Free Report) , GMS Inc. (GMS - Free Report) and Tecnoglass (TGLS - Free Report) .
About the Industry
The Zacks Building Products – Retail industry mainly comprises U.S. home improvement retailers, manufacturers of industrial and construction materials, and distributors of wallboard and ceilings systems. Some industry participants offer products and services for home decoration, repair and remodeling, and in-home delivery and installation services. A few industry players provide construction products, ranging from cement or concrete foundation materials to roofing boards and shingles. The companies also sell lumber, insulation materials, drywall, plumbing fixtures, hard-surface flooring, lawn and garden decor products. Some players also deal in threaded fastener products, and manufactured and natural stone tiles. In addition to general consumers, the industry players cater to professional builders, sub-contractors, remodelers and retailers.
4 Trends Shaping the Future of Building Products Industry
Favorable Housing Market Conditions: The Retail Building Products industry’s prospects are closely tied to the conditions prevailing in the U.S. housing market. Low mortgage rates and high demand for residential property have been aiding the market. The housing market witnessed robust trends in 2021, with low-interest rates, strongest yearly growth in single-family home prices and rentals, the lowest foreclosure rates, and increased home sales. The continued rise in consumers’ homebuying activities, leading to high demand for homes, is expected to bode well for players in the retail building products space.
Adherence to Home Refurbishing Activities: Consumers have continued to invest in making homes an enjoyable and comfortable space. Despite the easing of the pandemic-led restrictions and rising outdoor movement, Americans continue to incline toward home renovation and maintenance projects. Industry experts opine that consumers’ discretionary spending on homes will continue, as interests in keeping houses well-maintained are here to stay. Revamping interiors to facilitate work-from-home and entertainment needs continues to remain a major trend. Do-it-yourself (DIY) projects for decorating and maintaining furniture and fixtures are being widely undertaken. There is a higher demand for gardening tools, as well as products related to at-home activities such as paint and tool kits. This, along with rapid urbanization, should keep aiding the top-line performance of the industry participants.
Digitization in Focus: Retail Building Products industry participants have been witnessing a surge in online business transactions, thanks to consumers’ growing digital dependency. Companies have, therefore, been bolstering their digital presence by expanding the availability of online assortments and bolstering omni-channel capabilities. Such prudent measures have been aiding the companies to meet the accelerated demand. Companies are also ramping up their delivery operations in order to provide safe and swift services, especially to Professional (Pro) customers. The digital transaction boom should continue to drive the top line of key industry players.
Rising Costs: Some home improvement retailers have been incurring additional costs to provide enhanced payments and other benefits to employees amid the pandemic. Moreover, a few players have been witnessing inflationary pressure across product categories, as well as higher transportation costs. Such increased costs are likely to put pressure on margins. Nevertheless, companies are adopting prudent savings measures to cushion the impacts of such costs.
Zacks Industry Rank Indicates Solid Prospects
The Building Products – Retail industry is housed within the broader Zacks Retail-Wholesale sector. The industry currently carries a Zacks Industry Rank #22, which places it in the top 9% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. In the past year, the industry’s earnings estimates for the current fiscal year have increased 22.8%.
Given the industry’s encouraging prospects, we present a few stocks that you may want to consider buying for your portfolio. But before that, it is worth taking a look at the industry’s stock-market performance and current valuation.
Industry Vs. Broader Market
The Zacks Building Products – Retail industry has outperformed the broader Zacks Retail-Wholesale sector and the Zacks S&P 500 over the past year.
The industry has gained 25.3% over this period against the broader sector’s decline of 19.4%. Meanwhile, the S&P 500 has registered growth of 13.5% in the past year.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month price-to-earnings (P/E) ratio, which is the commonly used multiple for valuing Retail-Wholesale stocks, the industry is currently trading at 17.77X compared with the S&P 500’s 19.17X. Further, the sector’s forward-12-month P/E stands at 22.64X.
Over the last five years, the industry traded as high as 23.21X and as low as 16.03X, with the median at 19.49X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
5 Building Products Stocks to Buy
Builders FirstSource: The Dallas, TX-based company manufactures and supplies building materials. The company has been benefiting from its focus on cost synergies, strategic acquisition, and robust demand arising from solid housing, and repair and remodeling activities. Robust demand for single-family housing, R&R and other activities have been tailwinds for the company’s products and services. Builders FirstSource continues to focus on investing in innovations and enhancing digital solutions for its customers.
Acquisitions are important for Builders FirstSource’s growth strategy to supplement its organic growth and expand extensively across vast geographic boundaries. The Zacks Rank #1 (Strong Buy) company has been active on the acquisition front, which is supporting the top line. It is also focusing on cost-management practices. The stock has surged 67.2% in a year. The Zacks Consensus Estimate for BLDR’s current fiscal-year sales indicates growth of 2.4%. The consensus estimate for the current fiscal-year earnings has moved up 29.9% in the past seven days to $8.91 per share.
Tecnoglass: The Colombia-based company is a leading manufacturer of architectural glass, windows, and associated aluminum products serving the global residential and commercial end markets. Tecnoglass has been gaining from its ability to capitalize on strong residential demand, investments in automation and capacity enhancements and focus on execution. It has been delivering strong results for its single-family residential business, which has a shorter cash cycle.
Tecnoglass is poised to benefit from its business momentum, particularly strong single-family residential revenues. The Zacks Rank #1 company remains committed to leveraging its vertically integrated structure and innovative product development to boost shareholder value. The stock has rallied 124.9% in a year. The Zacks Consensus Estimate for TGLS’ current fiscal-year sales and earnings indicates growth of 18.9% and 14.4%, respectively. The consensus estimate for the current fiscal-year earnings has improved 9.9% in the past seven days.
Price and Consensus: TGLS
Fastenal Company: The Winona, MN-based wholesale distributor of industrial and construction products has been benefiting from strong demand for manufacturing and construction equipment, as well as supplies, and an uptick in sales of certain COVID-related products. The company's focus on virtual platforms to boost customers’ engagement also bodes well. Fastenal’s cost-control efforts, aggressive investment to increase Onsite locations, vending machine count and e-commerce business are expected to boost sales.
Industrial vending is one of the primary growth drivers for Fastenal and has the potential to significantly increase sales and profits. The Zacks Rank #2 (Buy) company is striving to boost its onsite locations portfolio, in which a mini-Fastenal shop is located in a customer’s facility. The FAST stock has risen 20.8% in a year. The Zacks Consensus Estimate for its current fiscal-year sales and earnings indicate growth of 12.6% and 11.9%, respectively. The consensus estimate for the current fiscal-year earnings has been unchanged in the past 30 days.
Price and Consensus: FAST
Lowe’s Companies: The Mooresville, NC-based leading home improvements retailer has been gaining from strong growth in its Pro business. The company also remains well-positioned to capitalize on the demand for the home improvement market, backed by investments in the technology and merchandise category. Strong execution of strategies, including the Total Home strategy, is likely to drive the company’s results in the near and long term. The Total Home strategy has been resonating well with Pro and DIY customers for a while.
Lowe’s has been progressing well with advancements in the digital channel. The company is investing toward enhancing omni-channel retailing capabilities. Management is also committed to enhancing the Pro offerings, expanding the company’s market share and driving the operating margin. Shares of the Zacks Rank #2 company have rallied 37.5% in a year. The Zacks Consensus Estimate for its current fiscal-year sales and earnings indicates growth of 1.9% and 11.1%, respectively. The consensus estimate for the current fiscal-year earnings has improved 0.4% in the past seven days.
Price and Consensus: LOW
GMS: The Tucker, GA-based leading North American specialty building product distributor has been gaining from the robust customer service in a solid residential market, coupled with an inflationary pricing environment and successful platform expansion activities. Inflationary pricing, healthy residential end markets, strong performance from complementary products and the recent acquisitions have been sales drivers for GMS.
The Zacks Rank #2 (Buy) company has risen 19% in a year. The Zacks Consensus Estimate for GMS’ current fiscal-year sales and earnings indicates growth of 36.6% and 101.7%, respectively. The consensus estimate for the current fiscal-year earnings has moved up 0.6% in the past seven days.
Price and Consensus: GMS
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5 Stocks to Buy in a Prospering Retail Building Products Industry
The Zacks Building Products – Retail industry has been gaining from consumers’ continued inclination toward home renovation and maintenance activities, leading to strong demand trends. The rapid urbanization and favorable trends in the housing market are added advantages. The companies in the industry are expected to gain from investments in omni-channel capabilities for meeting demand, execution of strategies and acquisitions.
Continued innovation and e-commerce expansion, and strong demand are likely to benefit industry participants like Lowe’s Companies Inc. (LOW - Free Report) , Fastenal Company (FAST - Free Report) , Builders FirstSource, Inc. (BLDR - Free Report) , GMS Inc. (GMS - Free Report) and Tecnoglass (TGLS - Free Report) .
About the Industry
The Zacks Building Products – Retail industry mainly comprises U.S. home improvement retailers, manufacturers of industrial and construction materials, and distributors of wallboard and ceilings systems. Some industry participants offer products and services for home decoration, repair and remodeling, and in-home delivery and installation services. A few industry players provide construction products, ranging from cement or concrete foundation materials to roofing boards and shingles. The companies also sell lumber, insulation materials, drywall, plumbing fixtures, hard-surface flooring, lawn and garden decor products. Some players also deal in threaded fastener products, and manufactured and natural stone tiles. In addition to general consumers, the industry players cater to professional builders, sub-contractors, remodelers and retailers.
4 Trends Shaping the Future of Building Products Industry
Favorable Housing Market Conditions: The Retail Building Products industry’s prospects are closely tied to the conditions prevailing in the U.S. housing market. Low mortgage rates and high demand for residential property have been aiding the market. The housing market witnessed robust trends in 2021, with low-interest rates, strongest yearly growth in single-family home prices and rentals, the lowest foreclosure rates, and increased home sales. The continued rise in consumers’ homebuying activities, leading to high demand for homes, is expected to bode well for players in the retail building products space.
Adherence to Home Refurbishing Activities: Consumers have continued to invest in making homes an enjoyable and comfortable space. Despite the easing of the pandemic-led restrictions and rising outdoor movement, Americans continue to incline toward home renovation and maintenance projects. Industry experts opine that consumers’ discretionary spending on homes will continue, as interests in keeping houses well-maintained are here to stay. Revamping interiors to facilitate work-from-home and entertainment needs continues to remain a major trend. Do-it-yourself (DIY) projects for decorating and maintaining furniture and fixtures are being widely undertaken. There is a higher demand for gardening tools, as well as products related to at-home activities such as paint and tool kits. This, along with rapid urbanization, should keep aiding the top-line performance of the industry participants.
Digitization in Focus: Retail Building Products industry participants have been witnessing a surge in online business transactions, thanks to consumers’ growing digital dependency. Companies have, therefore, been bolstering their digital presence by expanding the availability of online assortments and bolstering omni-channel capabilities. Such prudent measures have been aiding the companies to meet the accelerated demand. Companies are also ramping up their delivery operations in order to provide safe and swift services, especially to Professional (Pro) customers. The digital transaction boom should continue to drive the top line of key industry players.
Rising Costs: Some home improvement retailers have been incurring additional costs to provide enhanced payments and other benefits to employees amid the pandemic. Moreover, a few players have been witnessing inflationary pressure across product categories, as well as higher transportation costs. Such increased costs are likely to put pressure on margins. Nevertheless, companies are adopting prudent savings measures to cushion the impacts of such costs.
Zacks Industry Rank Indicates Solid Prospects
The Building Products – Retail industry is housed within the broader Zacks Retail-Wholesale sector. The industry currently carries a Zacks Industry Rank #22, which places it in the top 9% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. In the past year, the industry’s earnings estimates for the current fiscal year have increased 22.8%.
Given the industry’s encouraging prospects, we present a few stocks that you may want to consider buying for your portfolio. But before that, it is worth taking a look at the industry’s stock-market performance and current valuation.
Industry Vs. Broader Market
The Zacks Building Products – Retail industry has outperformed the broader Zacks Retail-Wholesale sector and the Zacks S&P 500 over the past year.
The industry has gained 25.3% over this period against the broader sector’s decline of 19.4%. Meanwhile, the S&P 500 has registered growth of 13.5% in the past year.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month price-to-earnings (P/E) ratio, which is the commonly used multiple for valuing Retail-Wholesale stocks, the industry is currently trading at 17.77X compared with the S&P 500’s 19.17X. Further, the sector’s forward-12-month P/E stands at 22.64X.
Over the last five years, the industry traded as high as 23.21X and as low as 16.03X, with the median at 19.49X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
5 Building Products Stocks to Buy
Builders FirstSource: The Dallas, TX-based company manufactures and supplies building materials. The company has been benefiting from its focus on cost synergies, strategic acquisition, and robust demand arising from solid housing, and repair and remodeling activities. Robust demand for single-family housing, R&R and other activities have been tailwinds for the company’s products and services. Builders FirstSource continues to focus on investing in innovations and enhancing digital solutions for its customers.
Acquisitions are important for Builders FirstSource’s growth strategy to supplement its organic growth and expand extensively across vast geographic boundaries. The Zacks Rank #1 (Strong Buy) company has been active on the acquisition front, which is supporting the top line. It is also focusing on cost-management practices. The stock has surged 67.2% in a year. The Zacks Consensus Estimate for BLDR’s current fiscal-year sales indicates growth of 2.4%. The consensus estimate for the current fiscal-year earnings has moved up 29.9% in the past seven days to $8.91 per share.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: BLDR
Tecnoglass: The Colombia-based company is a leading manufacturer of architectural glass, windows, and associated aluminum products serving the global residential and commercial end markets. Tecnoglass has been gaining from its ability to capitalize on strong residential demand, investments in automation and capacity enhancements and focus on execution. It has been delivering strong results for its single-family residential business, which has a shorter cash cycle.
Tecnoglass is poised to benefit from its business momentum, particularly strong single-family residential revenues. The Zacks Rank #1 company remains committed to leveraging its vertically integrated structure and innovative product development to boost shareholder value. The stock has rallied 124.9% in a year. The Zacks Consensus Estimate for TGLS’ current fiscal-year sales and earnings indicates growth of 18.9% and 14.4%, respectively. The consensus estimate for the current fiscal-year earnings has improved 9.9% in the past seven days.
Price and Consensus: TGLS
Fastenal Company: The Winona, MN-based wholesale distributor of industrial and construction products has been benefiting from strong demand for manufacturing and construction equipment, as well as supplies, and an uptick in sales of certain COVID-related products. The company's focus on virtual platforms to boost customers’ engagement also bodes well. Fastenal’s cost-control efforts, aggressive investment to increase Onsite locations, vending machine count and e-commerce business are expected to boost sales.
Industrial vending is one of the primary growth drivers for Fastenal and has the potential to significantly increase sales and profits. The Zacks Rank #2 (Buy) company is striving to boost its onsite locations portfolio, in which a mini-Fastenal shop is located in a customer’s facility. The FAST stock has risen 20.8% in a year. The Zacks Consensus Estimate for its current fiscal-year sales and earnings indicate growth of 12.6% and 11.9%, respectively. The consensus estimate for the current fiscal-year earnings has been unchanged in the past 30 days.
Price and Consensus: FAST
Lowe’s Companies: The Mooresville, NC-based leading home improvements retailer has been gaining from strong growth in its Pro business. The company also remains well-positioned to capitalize on the demand for the home improvement market, backed by investments in the technology and merchandise category. Strong execution of strategies, including the Total Home strategy, is likely to drive the company’s results in the near and long term. The Total Home strategy has been resonating well with Pro and DIY customers for a while.
Lowe’s has been progressing well with advancements in the digital channel. The company is investing toward enhancing omni-channel retailing capabilities. Management is also committed to enhancing the Pro offerings, expanding the company’s market share and driving the operating margin. Shares of the Zacks Rank #2 company have rallied 37.5% in a year. The Zacks Consensus Estimate for its current fiscal-year sales and earnings indicates growth of 1.9% and 11.1%, respectively. The consensus estimate for the current fiscal-year earnings has improved 0.4% in the past seven days.
Price and Consensus: LOW
GMS: The Tucker, GA-based leading North American specialty building product distributor has been gaining from the robust customer service in a solid residential market, coupled with an inflationary pricing environment and successful platform expansion activities. Inflationary pricing, healthy residential end markets, strong performance from complementary products and the recent acquisitions have been sales drivers for GMS.
The Zacks Rank #2 (Buy) company has risen 19% in a year. The Zacks Consensus Estimate for GMS’ current fiscal-year sales and earnings indicates growth of 36.6% and 101.7%, respectively. The consensus estimate for the current fiscal-year earnings has moved up 0.6% in the past seven days.
Price and Consensus: GMS