Why Universal Forest Shares Popped

Is this meaningful? Or just another movement?

Brian D. Pacampara, CFA
Brian D. Pacampara, CFA
Apr 18, 2013 at 3:16PM
Energy, Materials, and Utilities

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 wood products manufacturer Universal Forest Products (NASDAQ:UFPI) climbed as high as 13.6% today after its quarterly results topped Wall Street expectations.

So what: The stock has plunged over the past month on concerns over construction and housing demand, but a better than expected first quarter -- EPS of $0.26 on revenue growth of 21% -- naturally eases some of those worries. In fact, the report is one of the best first quarters Universal has ever posted, driven by strong sales efforts, share gains in some segments, and a rising lumber market.

Now what: Don't let today's pop prevent you from looking into the stock. "We're encouraged by the fact that our operating results were strong in spite of less-than-expected same-store unit sales to our do-it-yourself retail customers and lower margins in certain framing operations as a result of rapid cost increases that we could not pass on to customers," said CEO Matthew Missad. "We expect improved performance in each of these areas for subsequent quarters." More important, with the stock still off about 16% from its 52-week highs and trading at a reasonable forward P/E of 14, there might be some room left to profit from that improvement.

Interested in more info Universal Forest? Add it to your watchlist.