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Summary
Following my coverage on Builders FirstSource (NYSE:BLDR), which I recommended a hold rating due to my worries about the housing weakness, this post is to provide an update on my thoughts on the business and
Builders FirstSource: Rating Downgrade On Poor Near-Term Demand Outlook
Summary
- I downgraded Builders FirstSource to a sell due to disappointing 1Q25 performance, organic sales declines, and significant margin compression.
- Multifamily segment remains a major weakness, with a 32.7% y/y organic sales drop and no near-term recovery expected.
- The single-family market struggles under affordability pressures, with management expecting mid-single-digit declines in starts for FY25.
- Valuation is not cheap, and with ongoing demand and margin headwinds, I see more downside risk than upside potential.
I take a fundamentals-based approach to value investing.I disagree with the common misconception held by many investors that low multiple stocks must be cheap. I look for companies that offer the best long-term durability at the most affordable prices. Consequently, I have a propensity to be drawn to companies with steady long-term growth, no cyclicality, and a robust balance sheet.Nevertheless, investing in successful company is risky because one may end up paying too much (this is where valuation matters). I firmly believe this, yet there are situations where the development runway is so vast that price matters much less in the immediate future.
Analyst’s 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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