TopBuild currently trades at $426.51 per share and has shown little upside over the past six months, posting a small loss of 0.7%. The stock also fell short of the S&P 500’s 9% gain during that period.
Is now the time to buy TopBuild, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is TopBuild Not Exciting?
We’re sitting this one out for now. Here are three reasons why there are better opportunities than BLD, plus one stock we’d rather own.
1. Lackluster Revenue Growth
We at StockStory place the most emphasis on long-term growth, but within industrials, a stretched historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. TopBuild’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 3.9% over the last two years was well below its five-year trend. 
2. EPS Took a Dip Over the Last Two Years
While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.
Sadly for TopBuild, its EPS declined by 3.2% annually over the last two years while its revenue grew by 3.9%. This tells us the company became less profitable on a per-share basis as it expanded.
3. New Investments Fail to Bear Fruit as ROIC Declines
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
On average, TopBuild’s ROIC decreased by 1.5 percentage points annually each year over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
Final Judgment
TopBuild isn’t a terrible business, but it doesn’t pass our bar. With its shares trailing the market in recent months, the stock trades at 22.7× forward P/E (or $426.51 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We’re pretty confident there are more exciting stocks to buy at the moment. Let us point you toward a dominant aerospace business that has perfected its M&A strategy.
Stocks We Would Buy Instead of TopBuild
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