The stock tanked toward the end of 2018, but that had more to do with the broader pessimism surrounding the broader market, instead of weak operating results at the company, specifically.
IBP finished 2018 with revenue and adjusted earnings up 18% and 38.5%, respectively, in the fourth quarter. But the stock's nosedive took the valuation down to a forward price-to-earnings ratio of about 12 times this year's earnings estimate.
The stock rebounded to start 2019, as investors realized the housing market is not as bad as many had feared, making IBP shares a bargain.
The housing industry experienced some softness in certain markets toward the end of 2018, which carried over to the first half of this year. But IBP has been immune to the market weakness, primarily because the company has benefited from a buildup of previous orders that have been started but not yet completed.
IBP reported a good start to the year in the first quarter, although growth was slower because it was a seasonally slow period for the company historically. Both revenue and adjusted earnings were up 13% year over year.
The company is continuing to take market share in a highly fragmented industry for commercial and residential installation services. One of the ways management is doing so is through acquisitions. The company has a long pipeline of acquisition candidates, including insulation installers the company is targeting to expand its "footprint and geographic reach into compelling housing markets," as CEO Jeff Edwards explained.
Investors will want to keep an eye on the company's debt level, which stood at $430 million, outweighing total cash and investments of $98 million. Acquisitive companies can generate high returns when the economy is good, but high debt levels could make a downturn more severe, as interest expense on debt cuts into earnings.
However, it should be noted that IBP has been in business since 1977 and has acquired 140 companies since 1999. These acquisitions have diversified the company's offerings across several construction markets. Management credited the company's recent performance to its nationwide footprint and customer base.
The company expects to finish the year strong, as it benefits from price increases for its products. Analysts expect sales and adjusted earnings to increase by 10.2% and 14.2%, respectively, in 2019. The stock currently trades at 19 times this year's earnings estimate.