Builders FirstSource: Likely Overvalued As Construction Outlook Wanes

Nov. 14, 2022 3:42 AM ETBuilders FirstSource, Inc. (BLDR)1 Comment
Harrison Schwartz profile picture
Harrison Schwartz
13.43K Followers

Summary

  • Builders FirstSource was a top pick in 2020 and 2021, and low mortgage rates spurred tremendous growth in construction activity and property sales.
  • The company's profit margins rose dramatically due to parts shortages, allowing Builders FirstSource to sell well-above input costs temporarily.
  • With home affordability back at extreme lows and property prices falling, developers are starting to pull back and reduce new starts.
  • As building starts to decline, Builders FirstSource is likely to face sales and margin declines in 2023.
  • Builders FirstSource may be significantly overvalued, given its substantial exposure to the slowing construction market.

Classic big rig semi truck tractor transporting lumber on the flat bed semi trailer moving on the wide highway road

vitpho

The US home construction industry recovered quickly after 2020's challenges and was among the top-performing market segments in 2021. The sizeable initial decline in mortgage rates, combined with more at-home activity and government stimulus efforts, led to immense increases in home values, property

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Data by YCharts

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This article was written by

Harrison Schwartz profile picture
13.43K Followers
Harrison is a financial analyst who has been writing on Seeking Alpha since 2018 and has closely followed the market for over a decade. He has professional experience in the private equity, real estate, and economic research industry. Harrison also has an academic background in financial econometrics, economic forecasting, and global monetary economics.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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