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Why You Should Add GMS Stock to Your Portfolio Right Now

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GMS Inc.’s (GMS - Free Report) focus on execution, a strong residential market, robust demand for complementary products and inorganic moves have been helping it navigate numerous challenges presented by the COVID-19 pandemic.

Shares of this leading North American specialty distributor of interior building products have advanced 49.1% year to date, outperforming the Zacks Building Products – Retail industry’s 17.3% rally.

Analysts are optimistic about GMS’ near-term prospects, as is evident from the recent estimate revision trend. Earnings estimates have risen in the past few weeks, suggesting bullish sentiments surrounding the stock. The Zacks Consensus Estimate for fiscal 2022 earnings has increased 14.6% and the same for the next fiscal year has risen 19.3% over the past 30 days. In addition to the above-mentioned tailwinds, the price performance was backed by a solid earnings surprise history. GMS’ earnings surpassed the Zacks Consensus Estimate in all the trailing eight quarters. This bullish trend justifies the Zacks Rank #1 (Strong Buy) stock’s addition in investors’ portfolio. You can see the complete list of today’s Zacks #1 Rank stocks here.

Zacks Investment Research
Image Source: Zacks Investment Research

Let’s delve deeper into the major growth drivers.

Stellar Performance: The company exhibited solid results for fiscal 2021 on the back of record level of net sales, net income and adjusted EBITDA. During the fiscal fourth quarter, disciplined execution led to a 21% increase in net sales, including 17.1% organic growth. Again, continued cost discipline and favorable operating leverage enabled it to improve SG&A, resulting in an improvement of 160 basis points in adjusted EBITDA.

GMS has solid prospects, as is evident from the Zacks Consensus Estimate for earnings of $4.48 per share for the current year, indicating 26.6% year-over-year growth. Meanwhile, the company’s sales are expected to increase 13.6% for the current year.

Strong Residential Market: From an end-market perspective, U.S. residential sales showed considerable strength and were up in double digits on both higher volume and price for the fiscal fourth quarter. Meanwhile, commercial sales — which were sluggish from a volume perspective — were up in mid-single digits for the quarter due to higher pricing and significant COVID-19-related volume weakness last year.

Robust U.S. housing market fundamentals and R&R activities have been benefiting GMS and companies like Masco (MAS - Free Report) , Builders FirstSource, Inc. (BLDR - Free Report) , and Beacon Roofing Supply, Inc. (BECN - Free Report) . Housing markets have been showing resilience of late, given Fed’s dovish stance, low borrowing costs and lack of available supply. With the opening of the economy and increasing trend of consumers to invest more in homes amid the pandemic, demand for housing and building material products has been improving. Apart from remarkable recovery in single-family housing construction, repair/remodel activity also has been robust, supported by do-it-yourself and professional activity.

Inorganic Moves: Since its establishment in 1971, the company has grown the business from a single location to 268 branches across 44 U.S. states and six Canadian provinces through a combination of strategic acquisitions, opening new branches (i.e. greenfields) and organic growth.

During fourth-quarter fiscal 2021, GMS acquired D.L. Building Materials, Inc., which enabled it to debut in the Ottawa-Gatineau market in Canada and helped it establish four new locations, expanding presence to two additional markets, Atlantic City, NJ, and Memphis, TN.

On Jul 2, 2021, GMS acquired Westside Building Material, one of the nation’s largest independent distributors of interior building products. Westside significantly enhanced its footprint in several major California markets and marked its foray into the Las Vegas market. Expanding geographic platform through accretive acquisitions has been a vital component of GMS’ strategic growth priorities.