Builders FirstSource Inc (NYSE:BLDR) Meets Caviar Cruise Quality Investing Criteria for Long-Term Growth

The Caviar Cruise stock screening strategy is designed to find high-quality companies suitable for long-term investment. Based on the ideas of quality investing, this method looks for firms with steady revenue and profit growth, good returns on invested capital, reasonable debt levels, and the ability to turn earnings into free cash flow. The strategy prioritizes businesses with competitive edges, pricing strength, and lasting growth potential, qualities that help them endure economic ups and downs.

Builders FirstSource Inc (NYSE:BLDR) stands out as a candidate that meets many of these strict criteria. The company, a top supplier of building materials and services in the U.S., has shown solid operational results and financial discipline, making it a possible choice for investors focused on quality.

Key Criteria and BLDR’s Performance

1. Strong EBIT Growth (5Y CAGR > 5%)
BLDR’s EBIT has grown at a notable 32.4% CAGR over the past five years, well above the 5% target set by the Caviar Cruise screen. This shows the company’s ability to increase profitability effectively, likely due to scale benefits, cost control, or pricing strength, important traits for quality businesses.

2. High Return on Invested Capital (ROICexgc > 15%)
BLDR’s ROIC excluding cash and goodwill is 22.2%, much higher than the 15% benchmark. A high ROIC indicates the company earns strong returns from its capital investments, a sign of well-run firms with lasting competitive edges.

3. Manageable Debt Levels (Debt/FCF < 5)
With a Debt-to-Free Cash Flow ratio of 3.93, BLDR could pay off its debt in less than four years using its current cash flow. This matches the Caviar Cruise need for financial stability, ensuring the company isn’t overly indebted and can maintain operations during economic challenges.

4. Profit Quality (5Y Avg. > 75%)
BLDR’s five-year average profit quality, measured as free cash flow relative to net income, is 102.2%, showing that earnings are fully turned into cash. This is key for quality investors, as it confirms dependable cash generation rather than just accounting profits.

Fundamental Analysis Overview

According to Chartmill’s fundamental report, BLDR scores moderately with a rating of 4 out of 10, reflecting a mix of strengths and weaknesses:

• Profitability: BLDR’s margins and returns are average compared to peers, though its ROIC has been strong in the past. Recent drops in ROIC need closer review.
• Valuation: The stock seems fairly priced, trading below industry averages on metrics like P/E and EV/EBITDA.
• Growth: While past revenue and EPS growth have been strong, recent declines and modest future estimates point to a possible slowdown.
• Financial Health: Debt levels are higher relative to equity, but free cash flow coverage remains good.

Why BLDR Fits the Quality Investing Framework

BLDR’s ability to grow EBIT faster than revenue, keep a high ROIC, and produce strong cash flow aligns with the Caviar Cruise approach. The company’s focus on structural building products, a market with consistent demand, also supports its durability. However, investors should watch its debt structure and recent margin pressures.

For those interested in discovering more companies that meet the Caviar Cruise criteria, the full screen results are available here.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Investors should conduct their own research or consult a financial advisor before making decisions.