Stock Analysis

Here's Why Beacon Roofing Supply (NASDAQ:BECN) Has Caught The Eye Of Investors

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NasdaqGS:BECN
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It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Beacon Roofing Supply (NASDAQ:BECN). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Beacon Roofing Supply with the means to add long-term value to shareholders.

Check out our latest analysis for Beacon Roofing Supply

How Fast Is Beacon Roofing Supply Growing Its Earnings Per Share?

Over the last three years, Beacon Roofing Supply has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. Thus, it makes sense to focus on more recent growth rates, instead. Outstandingly, Beacon Roofing Supply's EPS shot from US$2.32 to US$5.53, over the last year. It's a rarity to see 138% year-on-year growth like that.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. The good news is that Beacon Roofing Supply is growing revenues, and EBIT margins improved by 2.8 percentage points to 8.5%, over the last year. That's great to see, on both counts.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

earnings-and-revenue-history
NasdaqGS:BECN Earnings and Revenue History September 6th 2022

Fortunately, we've got access to analyst forecasts of Beacon Roofing Supply's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Beacon Roofing Supply Insiders Aligned With All Shareholders?

It should give investors a sense of security owning shares in a company if insiders also own shares, creating a close alignment their interests. So it is good to see that Beacon Roofing Supply insiders have a significant amount of capital invested in the stock. Indeed, they hold US$25m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 0.7% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

While it's always good to see some strong conviction in the company from insiders through heavy investment, it's also important for shareholders to ask if management compensation policies are reasonable. A brief analysis of the CEO compensation suggests they are. For companies with market capitalisations between US$2.0b and US$6.4b, like Beacon Roofing Supply, the median CEO pay is around US$6.7m.

Beacon Roofing Supply offered total compensation worth US$5.7m to its CEO in the year to September 2021. That is actually below the median for CEO's of similarly sized companies. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of a culture of integrity, in a broader sense.

Is Beacon Roofing Supply Worth Keeping An Eye On?

Beacon Roofing Supply's earnings per share have been soaring, with growth rates sky high. The sweetener is that insiders have a mountain of stock, and the CEO remuneration is quite reasonable. The strong EPS improvement suggests the businesses is humming along. Beacon Roofing Supply is certainly doing some things right and is well worth investigating. You should always think about risks though. Case in point, we've spotted 1 warning sign for Beacon Roofing Supply you should be aware of.

Although Beacon Roofing Supply certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see insider buying, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

Valuation is complex, but we're helping make it simple.

Find out whether Beacon Roofing Supply is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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About NasdaqGS:BECN

Beacon Roofing Supply

Beacon Roofing Supply, Inc., together with its subsidiaries, distributes residential and non-residential roofing materials, and complementary building products to contractors, home builders, building owners, lumberyards, and retailers.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation6
Future Growth0
Past Performance6
Financial Health3
Dividends0

Read more about these checks in the individual report sections or in our analysis model.

Very undervalued with outstanding track record.