Why Headwaters Inc. Shares Soared Today

Is this meaningful? Or just another movement?

Apr 29, 2014 at 11:02AM

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of building products company Headwaters Inc. (NYSE:HW) soared 15% today after its quarterly results topped Wall Street expectations.

So what: The stock has slumped over the past few weeks on worries over slowing growth, but today's Q1 results -- adjusted loss of $0.04 beat Wall Street's view by $0.09 on 11% revenue growth -- are quickly easing those concerns. In fact, Headwaters' gross margin and operating margin both expanded over the year-ago period, suggesting that its competitive position and cost structure are improving as well.

Now what: For the full year 2014, management reaffirmed its prior adjusted EBITDA guidance of $130 million-$145 million. "Despite the severe winter weather, we continued to experience strong organic revenue growth and improvements in operating margins," said CFO Don Newman. "Our strategy relative to trimboard and roofing are working. We have expanded trimboard distribution, grown roofing revenue, and are beginning to see product expansion into the Florida market." Given Headwaters' still-hefty debt load and 20-plus forward P/E, however, I'd hold out for a wider margin of safety before buying into those prospects. 

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Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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