Reminder: Nothing here is financial advice. Stocks are volatile. Nobody knows anything.
Disclosure: I am long shares and options of $BXC.
BlueLinx is a supplier of building products. The market cap is $766M at the current price of ~$75/share. Last year, sales grew 32% to $4.3B, and operating earnings were $425M. For a stock to be this cheap, one must believe its past results are unsustainable.
This isn’t a sexy industry. The big player in the market, Builders FirstSource BLDR 0.00%↑ , trades at a 6x P/E. I’d take that! That would put BXC 0.00%↑ at $225/share versus the current $75.
Investors are concerned about the housing market slowdown in the face of higher rates and slower consumer demand. But that misses some major points:
40% of the business is repair and remodeling, and ~20% is commercial multifamily construction.
Single-family homes are still significant at 40%, but homes remain in an undersupply status in the US and are likely to remain that way for some years.
Margin expansion is driven by a shift from structural, lower-margin products to specialty offerings with higher margins.
Investors may also be missing some information about how the industry has been evolving toward not just specialty products but a suite of services around logistics, engineering services, and supply-chain management. I’m not suggesting that these companies might get closer to a market multiple, but the low to mid-single digits seem too low. Home Depot HD 0.00%↑ trades at 18x.
There is debt and commodity inventory risk, but debt and inventory levels have come down (net leverage down from 9.2x in 2019 to 1x now!)
Let’s go deeper and look more closely at the viability of this strategy playing out over the next year. The company will report earnings next week (August 3rd call), so we’ll get another major data point in short order.
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