Builders FirstSource Inc. (NYSE:BLDR) Passes Key Quality Investing Screener

For investors aiming to assemble a portfolio of lasting, superior companies, the quality investing method provides a structured system. This method centers on finding businesses with durable competitive strengths, reliable earnings, sound finances, and the capacity to produce high returns on capital across extended periods. It is not focused on market timing but on being a lasting holder of outstanding businesses. One organized method to discover these companies is through a stock screener based on measurable quality factors, such as the Caviar Cruise screen, which selects for solid revenue and profit increase, high returns on invested capital, reasonable debt, and trustworthy earnings.

A recent run of this screen highlighted BUILDERS FIRSTSOURCE INC (NYSE:BLDR), a top provider of building materials and fabricated components in the U.S. The company's details indicate it merits further examination by investors focused on quality, given a number of primary screening measures.

Matching the Central Quality Standards

The Caviar Cruise screen uses particular, strict filters to find possible quality investments. Builders FirstSource seems to match many of these important limits, which are intended to separate companies with better financial traits.

• High Return on Invested Capital (ROIC): A central part of quality investing, ROIC calculates how well a company produces earnings from its capital. The screen asks for a ROIC (leaving out cash, goodwill, and intangibles) over 15%. Builders FirstSource shows a number of 19.50%, meaning it is producing considerable value from its investments. This is a positive sign of a lasting competitive edge and skilled leadership.
• Solid Past Profit Increase: The screen requires that a company's Earnings Before Interest and Taxes (EBIT) has increased by at least 5% each year over the last five years. Builders FirstSource greatly passes this, with a five-year EBIT Compound Annual Growth Rate (CAGR) of 32.41%. This notable increase in core operating profit points to major operational leverage and scaling effectiveness.
• Profit Increase Surpassing Revenue Increase: A main filter searches for EBIT increase that is greater than revenue increase, an indicator of better profitability and possible pricing strength. Builders FirstSource's large EBIT increase is clearly higher than its five-year revenue CAGR of 1.08%, pointing to a strong widening in profit margins during the period.
• Reasonable Debt Level: Financial stability is essential for quality companies. The screen uses a Debt-to-Free Cash Flow ratio below 5, showing how many years it would take to pay all debt using current cash flow. Builders FirstSource's ratio of 4.35 falls within this acceptable band, meaning its debt load is reasonable compared to the cash it produces.
• Trustworthy Earnings: The screen looks for companies that efficiently turn accounting profits into actual cash, needing a five-year average Profit Quality (Free Cash Flow/Net Income) above 75%. Builders FirstSource performs well here with a number of 102.16%, indicating it has historically created more free cash flow than its reported net income. This is a mark of financial soundness and allows choice for dividends, buybacks, or new investment.

A Look at the Fundamental View

An inspection of Builders FirstSource's wider fundamental analysis report gives a more detailed picture. The company has an overall fundamental score of 4 out of 10, which shows a varied profile when assessed against similar companies in the Building Products field.

• Profitability & Increase: The company's profitability score is middling (6/10). It has a good Return on Equity and a three-year average ROIC much higher than the industry average. Margins, while lower than many peers, have demonstrated steady and notable betterment over recent years. The increase score is poorer (3/10), pulled down by a recent drop in earnings and revenue over the past year, although its long-term increase patterns stay positive.
• Financial Soundness: The health score is also middling (4/10). Good points include a history of reducing share count and an ROIC that is above its cost of capital. Worries focus on a somewhat high Debt-to-Equity ratio compared to industry peers, though its Debt-to-Free Cash Flow and liquidity ratios seem acceptable.
• Price Assessment: The price score is neutral (5/10). The stock seems fairly valued or somewhat inexpensive based on standard Price-to-Earnings and Price-to-Free Cash Flow ratios compared to both the industry and the wider market. Still, a higher forward P/E ratio and anticipated short-term earnings drop reduce the price attraction.

Is BLDR a Quality Investment Prospect?

Builders FirstSource makes a strong argument for quality investors based on the specific, past measures identified by the Caviar Cruise screen. Its high ROIC, strong historical EBIT increase, better profit conversion, and acceptable debt level match directly with the idea of searching for well-run companies that effectively generate cash and returns. These are the concrete, measurable marks the screen is made to find.

However, the wider fundamental report adds key background. The company's excellent historical increase is facing a cyclical drop, as shown in recent revenue and earnings declines and limited future increase projections. Its higher-than-average leverage is a point of notice, though currently backed by good cash flow. For a quality investor, the choice would depend on whether these are short-term, cyclical challenges for a basically sound business, or signals of a more lasting decline. The screen has effectively found a company with a quality history; the investor's job is to evaluate the continuation of that quality going forward.

The Caviar Cruise screen is a useful beginning step for locating companies with quality attributes. You can inspect the present screen outcomes and method yourself here: Caviar Cruise Quality Stock Screener.

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Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer to buy or sell any security. Investing involves risk, including the potential loss of principal. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions.