A Penny Stock with Five Consecutive Quarters of Double-Digit Revenue Growth and Ongoing Momentum

While it may still be too soon to say whether or not the housing market has fully recovered, things are looking up. On November 19, 2012, it was announced that existing home sales increased 2.1% in October from the previous month. Homebuilder confidence also rose to its highest level since 2006. (Source: Puzzanghera, J., “Existing-home sales and builder confidence rise,” Los Angeles Times, November 19, 2012.)

On November 20, 2012, government data showed that construction on new homes rose 3.6% in October, the highest rate since July 2008. Starts are also up 42% from last year. (Source: Mantell, R., “Housing Starts Highest in More Than Four Years.” The Wall Street Journal/MarketWatch, November 20, 2012.)

While the new home starts are a boon to new homebuilders, it’s also good news for those companies that supply the industry.

Builders FirstSource, Inc. (NASDAQ/BLDR) is a penny stock that manufactures and supplies structural and related building products (lumber, windows, trusses, doors, etc.) for residential new construction, primarily in the southern and eastern United States. Customers have included D.R. Horton and Hovnanian Enterprises. Builders FirstSource has grown through acquisitions to operate about 52 distribution centers and 47 manufacturing plants in nearly 10 states.

On October 18, 2012, the penny stock announced that revenue for the third quarter ended September 30 was up 34.3% at $291.8 million. Builders FirstSource’s third-quarter loss from continuing operations widened to $12.3 million, or $0.13 per share, from $11.5 million, or $0.12 per share, in the same quarter a year earlier. Year-to-date revenue was up 33.5% at $783.0 million. The penny stock’s year-to-date loss from continuing operations narrowed to $43.3 million, or $0.46 per share, from a loss of $47.9 million, or $0.51 per share, in 2011. (Source: Press release, “Builders FirstSource Reports Third Quarter 2012 Results,” Globe Newswire, October 18, 2012.)

Company CEO, Floyd Sherman, noted, “For the second consecutive quarter, we reported positive Adjusted EBITDA [earnings before interest, taxes, depreciation, and amortization], finishing with $3.0 million for the current quarter, as compared to an Adjusted EBITDA loss of $0.7 million in the third quarter of 2011, and on a year-to-date basis, our Adjusted EBITDA has improved from a loss of $11.7 million in 2011 to positive $3.0 million in 2012.” (Source: Press release, “Builders FirstSource Reports Third Quarter 2012 Results,” Globe Newswire, October 18, 2012.)

Chart courtesy of www.StockCharts.com

Builders FirstSource’s share price has been trending higher since November 2011 on strong back-to-back double-digit revenue growth, and speculation that a housing market recovery is in bloom. The penny stock’s 50-day moving average crossed over the 200-day moving average in late January; a bullish sentiment. During the same period, volume has also increased.

Builders FirstSource is a financially solid company, with growing revenues and expanding operations. Over the past five quarters, the penny stock has reported double-digit year-over-year percentage revenue growth. First-quarter 2012 revenue was up 34% at $219.4 million, while second-quarter revenue was up 31.7% at $271.9 million. Third-quarter revenue was up 34.3% at $291.8 million. And, for the second consecutive quarter, Builders FirstSource reported positive adjusted EBITDA.

Going forward, Sherman added, “We expect the momentum we’ve achieved from the improvement in the housing industry and our recent market share gains to continue to positively impact our operating results. We remain focused on growing market share and improving our margins in order to drive profitability as the market continues to recover.” (Source: Press release, “Builders FirstSource Reports Third Quarter 2012 Results,” Globe Newswire, October 18, 2012.)

While Builders FirstSource’s share price is still susceptible to fluctuations in new home build and existing home sales, the penny stock could experience a boost in the second and third quarter of 2013, when demand for construction supplies is expected to materialize with the rebuilding efforts related to Hurricane Sandy.