ROAD Stock Climbs 52% in 3 Months: Should You Buy the Surge or Wait?
Construction Partners, Inc. ROAD shares have soared 52.3% in the past three months, significantly outperforming the Zacks Building Products - Miscellaneous industry, the broader Construction sector and the S&P 500 index. The detailed share price performance can be studied from the chart below.
Image Source: Zacks Investment Research
The company's vertically integrated business model amid a favorable public infrastructure spending backdrop is driving its prospects in an uncertain macro environment. Moreover, its diverse offerings across products and services bring it closer to several growth opportunities through organic and inorganic moves. Another intriguing aspect of ROAD stock for investors is its bullish fiscal 2025 outlook, which the company raised in its recent earnings release.During the past three months, ROAD stock has also outshone a few of its industry peers, including Armstrong World Industries, Inc. AWI, Installed Building Products, Inc. IBP and Advanced Drainage Systems, Inc. WMS. During the said time frame, the share price performance of Armstrong World has inched up 4.5%, while the same for Installed Building and Advanced Drainage has tumbled 4.4% and 0.2%, respectively.
Vertically-Integrated Model: Construction Partners exercises a vertically integrated business model that notably offers it a competitive advantage over its peers and helps in leveraging market opportunities for its profitability. Through vertical integration, the company is able to optimize its supply chain and reduce volatility risks, while increasing supplier flexibility and enhancing its margins in the process.Through this strategic business model, ROAD aims to support its ROAD-Map 2027 goals. The targets include annual revenue growth in the range of 15-20% and EBITDA margin expansion in the range of 13-14%.Diversified Growth Opportunities: ROAD's diversified business offerings, including manufacturing and construction services, open doors for several growth opportunities in the market, organically or inorganically. Through organic growth, the company expands its services or facilities in the existing markets via upgrades and similar activities. Inorganically, it engages in acquiring new businesses that complement its existing business and expand its market reach. Furthermore, through greenfield expansion, the company enters new markets and upgrades its vertically-integrated business model by establishing manufacturing facilities.The revolutionary Lone Star Acquisition, completed on Nov. 1, 2024, proved incremental to ROAD's business. This strategic acquisition of the Texas-based company has enhanced the company's value and expanded its geographic footprint through 10 HMA plants, four aggregate facilities and one liquid asphalt terminal, and accelerated achieving the ROAD-Map 2027 targets.Strong Fiscal 2025 Views: Backed by favorable market fundamentals, Construction Partners has raised its fiscal 2025 outlook, reflecting robust year-over-year growth and inducing investors' optimism.For the full fiscal year, the company now expects revenues to be between $2.77 billion and $2.83 billion (up from the previous range of $2.66-$2.74 billion), indicating significant 52.2-55.5% year-over-year growth. Adjusted EBITDA is now forecasted between $410 million and $430 million (up from the previous range of $375-$400 million), reflecting year-over-year growth between 85.9% and 94.9%. Adjusted EBITDA margin is now expected in the range of 14.8-15.2% (up from the 14.1-14.6% range expected earlier), reflecting year-over-year growth of 12.1%.
ROAD's earnings estimates for fiscal 2025 and 2026 have trended upward in the past 30 days by 10.3% to $2.14 per share and 1.5% to $2.71 per share, respectively. The estimated figures for fiscal 2025 and 2026 reflect 60.9% and 26.5% year-over-year growth, respectively.
EPS Trend
Image Source: Zacks Investment Research
Analysts' sentiments are likely to have been boosted by the favorable market fundamentals and the company's upbeat fiscal 2025 expectations.
Technical indicators suggest a continued strong performance for Construction Partners. From the graphical representation given below, it can be observed that ROAD stock is riding above both the 50-day simple moving average (SMA) and the 200-day SMA, signaling a bullish trend. The technical strength underscores positive market sentiment and confidence in ROAD's financial health and prospects.
50 & 200-Day SMA
Image Source: Zacks Investment Research
Construction Partners is currently trading at a premium compared with its industry peers on a forward 12-month price-to-earnings (P/E) ratio basis. The premium valuation indicates that the stock is trading above its industry peers, making it difficult for investors to figure out a suitable entry point.
Image Source: Zacks Investment Research
However, the overvaluation of ROAD stock compared with its industry peers indicates its strong potential in the market, given the favorable trends backing it up.
Per the discussion above, this civil infrastructure company's prospects are gaining from its vertically-integrated business model, which is exceptionally aiding it in reducing supply-chain risks and expanding its margins. Especially in the current uncertain macro environment, such a strategic business model is coming in handy for the company against favorable public infrastructure spending trends.Investors must consider all the tailwinds against the probable market headwinds when deciding on any action to be taken in favor of ROAD stock.Thus, after considering the favorable fundamentals and the trends of the technical indicators, this Zacks Rank #2 (Buy) stock is a decent choice to be added to the portfolio for now. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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