Here’s Why I Think Installed Building Products (NYSE:IBP) Might Be Worth Your Attention Today

For starters, it might seem like a good idea (and an exciting prospect) to buy a company that tells investors a good story, even if it completely lacks a track record of revenue and earnings. But as Warren Buffett said, “If you’ve been playing poker for half an hour and you still don’t know who the sucker is, you’re the sucker.” When buying such stocks, investors are too often suckers.

In the era of blue-sky tech-stock investments, my choice may seem old-fashioned; I always prefer profitable companies like Building products installed (NYSE:IBP). Although profit is not necessarily a social good, it is easy to admire a company that can produce it consistently. While a well-funded business may suffer losses for years, unless its owners have an endless appetite to subsidize the customer, it will eventually have to turn a profit, or else breathe its last breath.

Check out our latest analysis for installed building products

How fast do installed building products increase earnings per share?

If a company can keep increasing its earnings per share (EPS) long enough, its stock price will eventually follow. This makes EPS growth an attractive quality for any business. It is certainly pleasing to see that Installed Building Products has managed to increase EPS by 36% per year over three years. Generally, we would say that if a company can follow this kind of growth, shareholders will be smiling.

A careful look at revenue growth and earnings before interest and tax (EBIT) margins can help inform a view on the sustainability of recent earnings growth. Installed Building Products maintained stable EBIT margins over the past year, while growing revenue by 25% to US$2.1 billion. It is progress.

The chart below shows how the company’s top and bottom line has grown over time. To see the actual numbers, click on the chart.

NYSE: IBP Earnings and Revenue History as of May 30, 2022

Of course, the trick is to find stocks that have their best days in the future, not in the past. You can of course base your opinion on past performance, but you can also view this interactive chart of professional analyst EPS forecasts for installed building products.

Are insiders of installed building products aligned with all shareholders?

I like that business leaders have some skin in the game, so to speak, because it increases the alignment of incentives between the people running the business and its true owners. Accordingly, I am encouraged that insiders hold Installed Building Products stock of considerable value. Notably, they own a huge stake in the company, worth US$503 million. Representing 18% of the company, this stake gives insiders plenty of leverage and plenty of reasons to drive shareholder value. It may be my imagination, but I feel the glimmer of opportunity.

It means a lot to see insiders invested in the company, but I wonder if the compensation policies are shareholder-friendly. Well, based on the CEO’s salary, I’d say they are indeed. For companies with a market capitalization between $2.0 billion and $6.4 billion, such as Installed Building Products, the median CEO salary is around $6.6 million.

The CEO of Installed Building Products received US$4.4 million in compensation for the year ending . This is below average for companies of a similar size and seems pretty reasonable to me. CEO compensation isn’t the most important aspect of a company to consider, but when it’s reasonable, it gives me a bit more confidence that executives are looking out for shareholders’ interests. I would also say that reasonable levels of compensation attest to good decision-making more generally.

Are the installed building products worth monitoring?

Since I believe stock price tracks earnings per share, you can easily imagine how I feel about the strong EPS growth of Installed Building Products. If you need more conviction beyond that EPS growth rate, don’t forget reasonable compensation and high insider participation. Each in its own way, but I think it all makes the installed building products quite interesting. Even then, be aware that Installed Building Products displays 1 warning sign in our investment analysis you should know…

Although Installed Building Products looks good to me, I would prefer insiders to buy stocks. If you also like to see insiders buy, then this free list of growing companies that insiders are buying might be exactly what you are looking for.

Please note that insider trading discussed in this article refers to reportable trading in the relevant jurisdiction.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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