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Bear Of The Day: Construction Partners (ROAD)

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As the editor of the Home Run Investor portfolio, I have to say that I was long shares of Construction Partners (ROAD - Free Report) from June 5, 2019 to September 11, 2019.  Over the course of those three months, the stock appreciated 9.8% but that gain could have been a lot better.

The stock traded over $20 in December and then there the recent earnings. Before I get into that, let's take a look at the basics in this Bear of the Day article.

Description

Construction Partners Inc. is an infrastructure and road construction company. It provides construction products and services to public and private sectors. The company's services include construction of highways, roads, bridges, airports and commercial and residential sites. Construction Partners Inc. is based in Alabama, United States.

Recent Earnings

On December 9, the company missed the Wall Street consensus estimate by two cents and also missed on top as well.  That caused the stock to fall 20% in short order.

Backlog came in at $531M, down from the $594M level it was at a year ago.

Guidance was inline with revenues expected to come in at $830M to $870M when the consensus was calling for $854M.

Estimates Fall

The primary driver of the Zacks Rank is earnings estimate revisions.

For ROAD, I see estimate falling for this quarter, next quarter, the full fiscal year 2020 and the full fiscal year 2021.

The Zacks Consensus Estimate for fiscal 2020 has fallen from $0.99 to $0.89.  The number for next year has slipped from $1.12 to $0.95

Valuation

At 19x forward earnings, the stock isn't exactly cheap.  I see 10% topline growth so that makes that multiple more manageable.  A 2.5x price to book multiple is still low enough to keep value investors interested and at 1.1x sales

So the question becomes, is this stock buyable down here?  I would want to see the Zacks Rank turn around first.  Earnings estimates that fall have a way of falling more, so when that downturn is over, the stock could be prime for a buyable dip.

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