GMS Surges 87% Year To Date: Can The Bull Run Continue?

GMS Inc. (NYSE:GMS) has been riding high on healthy residential and commercial end markets with solid demand. Although continued softness in the Canadian single-family housing market remains a concern, solid organic growth opportunities across its existing platform and accretive acquisitions are expected to drive growth.

Shares of GMS, which is a distributor of wallboard and suspended ceilings systems, have gained 86.8% year to date compared with the industry’s 31.1% rally. Also, it has outperformed the S&P 500’s 18.6% rise in the said period.

Earnings estimates for fiscal 2020 and 2021 have moved up 2% and 2.6%, respectively, over the past 30 days. This positive trend signifies bullish analysts’ sentiments and justifies the company’s Zacks Rank #2 (Buy), indicating robust fundamentals and the expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

What’s Working in Favor of the Stock?

Expansion Drive: The company seeks to capitalize on significant growth opportunities across its existing platform. The company follows a systematic growth strategy that entails it to capture share within the existing markets and expand into new markets via opening new branches. GMS also expands geographical footprint through strategic acquisitions that continue to support organic growth.

The company’s recent buyouts include acoustical and drywall operations of J.P. Hart Lumber Company (Hart Acoustical & Drywall Supply) in June 2019; Commercial Builders Group, LLC (an interior building products distributer in LaPlace, Louisiana) in March 2019; Charles G. Hardy, Inc. (an interior building products distributor in Paramount, CA) in August 2018; and Titan (a distributer of wallboard, lumber, insulation and other complementary commercial and residential building materials) in June 2018. Titan is Canada’s largest gypsum specialty dealer, with 30 locations across five provinces in Canada.

Meanwhile, during the first quarter of fiscal 2020, it opened two Greenfield locations, one in Manchester New Hampshire, and the other in Wichita Falls Texas.

Strong Demand: The company started fiscal 2020 on a strong note, recording impressive net sales growth and solid organic net sales improvement in the fiscal first quarter, driven by strong sales in the United States, where it continues to see healthy end market demand. In the last reported quarter, its net sales were up 8.9% year over year, or 3.4% on an organic basis. Sales of Wallboard, Ceilings, Steel Framing and Other products increased 7.5%, 11.4%, 2.1% and 13.6%, respectively, in the quarter, mainly backed by higher organic volumes and acquisitions.

Superior ROE: GMS’ return on equity (ROE) is indicative of growth potential. The company’s ROE of 19% compares favorably with the industry average of 13.2%, implying that it is efficient in using its shareholders’ funds.

Other Stocks to Consider

Other top-ranked stocks in the same space include BMC Stock Holdings, Inc. (NASDAQ:BMCH) , Builders FirstSource, Inc. (NASDAQ:BLDR) and Lowe's Companies, Inc. (NYSE:LOW) . While BMC Stock sports a Zacks Rank #1, the other two stocks carry a Zacks Rank #2.

BMC Stock and Builders FirstSource surpassed earnings estimates in all the trailing four quarters, with the average being 38.8% and 26.6%, respectively.

Lowe's Companies has a three-five year expected EPS growth rate of 13.7%.

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