Please ensure Javascript is enabled for purposes of website accessibility

Why GMS Inc. Stock Just Popped 10%

By Rich Smith – Apr 5, 2018 at 3:53PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

GMS is taking Canada by storm.

What happened

Shares of U.S. wallboard and suspended ceilings systems distributor GMS Inc (GMS -2.36%) popped 13% in early trading Thursday and remained up 10.2% as of 2:40 p.m. EDT after announcing a large acquisition in America's neighbor to the north.

So what

As announced earlier this morning, GMS has agreed to acquire 100% of the equity of Canada's largest wallboard distributor, WSB Titan, in a deal valued at $627 million. Commenting on the acquisition, GMS CEO Mike Callahan noted: "The acquisition of Titan further extends our leadership position as the largest wallboard distributor in North America with significant scale advantages and a well-balanced portfolio built for growth." In addition to being America's largest drywall distributor, GMS now will hold that title in Canada, as well -- and accordingly in North America as a whole.

The deal also will lend GMS a bit of geographic diversity. Up until now, the company had derived more than 99% of its revenues from just one country -- ours. Going forward, WSB Titan's $459 million in annual revenues will constitute 16.5% of total sales at the combined company.

Drywall in a house under construction.

Rarely does drywall cause this much excitement. Image source: Getty Images.

Now what

Investors seem pleased with this prospect. They should also be pleased with the price GMS is getting. According to management, the $627 million that GMS will pay to acquire WSB Titan works out to a valuation of about eight times earnings before interest, taxes, depreciation, and amortization (EBITDA). That's a considerable discount to the nearly 10 times EBITDA valuation that GMS' own shares command -- indicating that GMS has snagged itself a bargain.

Investors are right to be bidding this one up.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

GMS Inc. Stock Quote
GMS Inc.
$38.52 (-2.36%) $0.93

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.