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TopBuild (BLD) Hits 52-Week High: Can the Bull Run Continue?

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TopBuild Corp. (BLD - Free Report) touched a 52-week high of $159.56, before closing the session a tad lower at $155.21 on Aug 18. This can be primarily attributed to solid housing market prospects. Also, strong performance and prudent inorganic moves are driving the stock’s performance.

We note that shares of this Daytona Beach, FL-based installer and distributor of insulation and other building products have increased 51.9% in the past three months, outperforming the industry’s 30% rally. This Zacks Rank #1 (Strong Buy) stock has also outperformed the Zacks Construction sector and the S&P 500 Index’s 31.3% and 13.4% rally, respectively, in the said time frame. You can see the complete list of today’s Zacks #1 Rank stocks here.

 

Factors Narrating TopBuild’s Growth Story

As TopBuild’s business prospects are highly correlated with U.S. housing market conditions and repair and remodeling activities, the recent housing market recovery after COVID-19-led slowdown is expected to help the company generate higher revenues. The U.S. homebuilding industry has been bullish since the government eased coronavirus-led restrictions backed by low mortgage rates.

If we look into its first-half 2020 performance, sales increased just 1.6% due to COVID-19-led disruptions, while adjusted earnings per share grew 22.1%, adjusted EBITDA was up 16.4% and adjusted EBITDA margin expanded 190 basis points from the prior-year period. Impressive margin expansion led to increased profitability, depicting a flexible operating model and its ability to quickly reduce costs.

Also, acquisitions have been an important part of TopBuild’s growth strategy. It completed one acquisition in 2019 and two in the first half of 2020. On Feb 24, 2020, the company announced that it has acquired Hunter Insulation, an 80-year old residential insulation company based in Long Island, NY. Also, on Feb 20, 2020, it added Cooper Glass Co, LLC — a commercial glass company serving the Memphis market — to its portfolio.

With a clearer outlook of the positive trajectory of the housing industry and a strong balance sheet with almost $650 million of liquidity, the company has resumed the acquisition program again after a brief suspension due to COVID-19-led uncertainty.

Meanwhile, TopBuild’s superior return on equity (ROE) is indicative of growth potential. The company’s ROE stands at 17.3% compared with 10.8% for the industry it belongs to. This indicates efficiency in using its shareholders’ funds.

Other Stocks to Consider

Aegion Corporation (AEGN - Free Report) delivered an earnings surprise of 91% in the last four quarters. The stock currently has a Zacks Rank #1.

Installed Building Products Inc. (IBP - Free Report) delivered an earnings surprise of 23.3% in the last four quarters. The stock currently has a Zacks Rank #1.

Owens Corning Inc. (OC - Free Report) delivered an earnings surprise of 63.8% in the last four quarters. The stock currently has a Zacks Rank #1.

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