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Builders FirstSource (BLDR), featured in today’s IBD 50 Stocks To Watch, has formed a rare pattern that could yield even bigger gains.
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The Dallas-based company makes building products such as roof trusses, wall panels, stairs, doors, windows and more for residential new construction in the U.S.
Building products stocks have shown recent strength. Going into Monday, the construction products/miscellaneous group ranked No. 64 out of IBD’s 197 industry groups, up from No. 90 six weeks ago.
On Nov. 4, Builders FirstSource reported triple-digit profit and sales growth on a year-over-year basis. That marked the third straight quarter of triple-digit gains on both the top and bottom lines.
“Demand for single-family housing continues to support our top line growth and we believe that growth will be sustained over time as demographics continue to develop favorably,” CEO Dave Flitman said on the earnings call. He also noted that the amount of single-family housing under construction rose 31% during the third quarter.
“In fact, there are currently more single-family homes under construction across the country than there have been in more than 14 years and our homebuilder backlog is currently at the highest level it has been in the last 15 years,” Flitman said. “This data is an encouraging sign for our business as we finish 2021 and look to next year, and we expect demand to remain robust.”
Stocks To Watch: Top-Notch Ratings
IBD Stock Checkup assigns Builders FirstSource a 98 Composite Rating, which gives investors a quick way to gauge a stock’s key growth traits. That puts it among the top stocks to watch in the 41-stock group, which includes fellow IBD 50 stock Atkore (ATKR) and Trex (TREX).
Builders FirstSource shares a highest possible 99 Earnings Per Share Rating with Atkore and TopBuild (BLD). It reflects a five-year compound earnings growth rate of 45%. Analysts expect EPS to jump 186% this year. Profits have rebounded from a 9% decline in Q1 2020 to triple-digit growth the past four quarters.
On the technical side, a 93 Relative Strength Rating places Builders FirstSource in the top 7% of all stocks. The relative strength line, which compares a stock’s performance with the S&P 500, is near record highs. That’s a bullish sign.
Builds Rare Pattern
Meantime, Builders has constructed a rare pattern that occurs over just two weeks: the short-stroke.
Shares soared 15% the week ended Nov. 5, then edged 1% higher the next week, according to MarketSmith chart analysis. The stock was just shy of a new high in the second week. Lower than average volume that week show institutional investors weren’t in a hurry to sell shares.
The ideal buy point sits 10 cents above first week’s peak — so 68.92 plus a dime, or 69.02. The short-stroke pattern can be used to start a new position or to add to an existing one.
Follow Nancy Gondo on Twitter at @IBD_NGondo
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