Builders FirstSource, Inc. (BLDR): what the price requires

Generated: 2026-07-14 · Exported: 2026-07-16 · Source: https://boothcheck.com/report/BLDR

Headline

Field	Value
Ticker	BLDR
Company	Builders FirstSource, Inc.
Current price	$73.07/sh

What The Price Requires (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

Field	Value
Inversion basis	whole-company
Operating margin needed	2.7%
Operating margin today	4.9%
Margin compression implied	-2.2pp
Implied growth	10.7%
Multiple paid	18x operating income

The operating-margin requirement is derived from the framework's value band at year 12, a separately labeled basis from the headline growth/duration solve.

Solve inputs: computed at a 9% cost of capital with 4% terminal growth over a 5-year stage; each 1pp of cost of capital moves the implied operating-profit growth ~6.6pp.

How unusual the bet is: within-range

Reference	Value
vs own history	-0.41σ
cohort percentile (of 210 peers)	50
sustained it ~5 years at this level	53%
implied end-window share	0%

Valuation X-Ray

Every valuation family lands below the price. The price therefore requires assumptions beyond what those standard frames encode.

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

Family	Median price/FV	Models	Reads
Asset	2.72x	4	expensive
Earnings	2.09x	4	expensive
Relative	1.42x	3	expensive
Growth	1.71x	3	expensive

Families that call it expensive: Asset, Earnings, Growth

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 7.2%); the inversion above states its own rate.

Per-Model Detail (n=14)

Model	Family	FV	Price/FV	Applicable	Methodology
DCF Perpetual Growth	Growth	$42.72	1.71x	yes	FCF base $0.9B, growth -9% (input: historical growth), terminal g 0.5%, WACC 7.2%, 5yr projection
DCF Exit Multiple	Growth	$79.53	0.92x	yes	Exit EV/EBITDA: 15.2x / 17.2x / 19.2x (bear / base = today's held flat / bull), 5yr
Relative Valuation	Relative	$51.53	1.42x	yes	P/E 20x (static sector reference · 2026-04), scenarios: 16.9x / 20.0x / 23.1x (bear / base = reference held flat / bull), EV/EBITDA 14x
Simple DDM	Growth	—	—	no	—
Two-Stage DDM	Growth	—	—	no	—
Simple Excess Return	Asset	$28.68	2.55x	yes	BV/sh $36.45, ROE (TTM) 7.3%, ke 9.3%
Two-Stage Excess Return	Asset	$25.30	2.89x	yes	5yr excess ROE then converge to ke=9.3%
Discounted Future Market Cap	Growth	$35.74	2.04x	yes	Rev $14.8B, growth -9% (input: historical growth; tapered), Terminal P/S: 0.5x / 0.5x / 0.6x (bear / base = today's held flat / bull, cap 8x)
Growth-Adjusted P/E	Relative	—	—	no	—
Margin Trajectory	Growth	—	—	no	—
Earnings Power Value	Earnings	$167.11	0.44x	yes	Normalized EBIT (5y avg op income, one-time charges added back) $2.10B × (1−21%) / WACC 7.2% → EPV (no growth)
Residual Income	Asset	$24.80	2.95x	yes	BV $36.45 + 5yr PV of (ROE (TTM) 7.3% − Kₑ 9.3%) × BV; BV grows 4.7%/yr
Graham Number	Asset	$46.35	1.58x	yes	√(22.5 × EPS $2.62 × BVPS $36.45) — Graham's conservative floor
EV/EBITDA Relative	Relative	$50.65	1.44x	yes	EBITDA $0.77B × sector EV/EBITDA 14.0x
FCF Yield	Earnings	$37.73	1.94x	yes	FCF $861.6M / Kₑ 9.3% — zero-growth perpetuity
SBC-Adj FCF Yield	Earnings	$32.53	2.25x	yes	SBC-adj FCF $0.81B (FCF $0.86B − SBC $0.05B) capitalized at Kₑ
Ben Graham Formula	Earnings	$2.20	33.21x	yes	EPS $2.62 × (8.5 + 2×-5.0%) × (4.4 / 5.3%) (excluded from median)
ROIC-Justified P/B	Asset	$0.72	101.49x	yes	BV $36.45 × (ROIC 0.1% / WACC 7.2%) (excluded from median)
P/Sales Sector	Relative	$202.33	0.36x	yes	Revenue $14.82B × sector P/S 1.5x
PEG Fair Value	Relative	—	—	no	—
Earnings Yield	Earnings	$28.32	2.58x	yes	EPS $2.62 / required return 9.3% (Rf 4.3% + ERP 5.0%)
Funds From Operations Multiple	Relative	—	—	no	—
Clinical Phase NPV	Growth	—	—	no	—
Merton	Asset	—	—	no	—
V5 Mechanical	—	—	—	no	—

Solvency

Field	Value
Net debt	$4.5b
Net debt / NOPAT (after-tax)	7.75x
Net debt / operating income (pre-tax)	6.13x
Share count CAGR (buyback)	-11.6%
Burning cash	no

Interest expense is not separately reported in the latest filings, so interest coverage cannot be computed.

Bullet Takeaways

Builders FirstSource is the largest US building-materials distributor, currently at a cyclical trough: revenue down about 10 percent and adjusted EBITDA down roughly 42 percent, which makes the 19 times trailing multiple look richer than the normalized business is.

The through-the-cycle anchor is far higher: normalized Earnings Power Value lands near 163 dollars (versus the 80 dollar price) on five-year average operating income of about 2.1 billion, and the share count has fallen about 12 percent in a year through buybacks.

The debate is cyclical timing: the bull leans on normalized earnings and the mix shift to higher-margin value-added products; the bear notes the normalized figure includes the post-pandemic boom and that net debt sits at more than 7 times trough operating income.

Bull Case

The counterintuitive thing about Builders FirstSource is that it looks expensive only because you are looking at it at the bottom of its cycle. Trailing operating income of about 618 million dollars makes the roughly 19 times multiple seem rich, but that trailing figure is a trough number, with revenue down about 10 percent year over year as housing slows. The valuation method built to see through the cycle, normalized Earnings Power Value, tells a different story: it lands near 163 dollars, roughly double the price, because the five-year average operating income it uses is about 2.1 billion dollars, more than three times the depressed trailing level. The market is pricing the trough; the through-the-cycle earnings power is far higher.

The franchise underneath is the largest building-materials distributor in the country, and it is steadily mixing toward higher-margin work. The 10-K describes the strategy directly, that "our national manufacturing footprint and differentiated capabilities will allow us to capture growth in our higher margin value-added products" (accession 0000950170-25-023953). Roof trusses, wall panels, millwork, and engineered components carry better margins than commodity lumber and lock in builder relationships. The company is also building digital tools through its Paradigm subsidiary for "drafting, estimating, quoting, and virtual home design," extending the relationship beyond the truck delivery. Gross margins remain near 30 percent even in the downturn, evidence the mix shift is holding.

Capital allocation is the quiet compounding machine. The share count has fallen about 12 percent over the past year through aggressive buybacks, which means every dollar of normalized earnings is spread over far fewer shares. When the housing cycle turns and operating income reverts toward its normalized level, that earnings power lands on a dramatically smaller share base. The price implies operating growth of about 15 percent per year, which on a trough base is really a bet on cyclical recovery plus continued buyback-driven per-share growth. The bull case is owning the scaled leader in a cyclical industry, at trough earnings, while management retires the share count.

Bear Case

The sector cycle is the entire bear case, and it cuts the opposite way from the bull's normalized optimism. Builders FirstSource sells into residential construction, and that market is contracting: revenue fell about 10 percent year over year, adjusted EBITDA dropped roughly 42 percent, and gross margin compressed 220 basis points. The 10-K spells out why the operating leverage works against the company on the way down, noting that "because we have substantial fixed costs, relatively modest" declines in volume hurt earnings disproportionately (accession 0000950170-25-023953). The same fixed-cost base that magnifies earnings in an upcycle is now magnifying the downturn. The price embeds about 15 percent annual operating growth and sits in the upper half of the peer multiple range, which is a demanding stance for a business whose revenue is shrinking and whose end market faces elevated mortgage rates and affordability constraints.

The bull's normalized-earnings anchor is precisely the assumption a bear should question. Earnings Power Value of 163 dollars depends on the five-year average operating income holding as a fair representation of the future, but that window includes the post-pandemic housing and lumber-price boom, an unusually favorable stretch that may not repeat. If the normal level of housing starts is structurally lower than the recent average, the through-the-cycle earnings power is overstated, and the stock is not cheap at all. The other valuation methods, which lean on current returns, agree: the asset and excess-return reads land between roughly 25 and 29 dollars on a trailing return on equity of 7.3 percent, well below the cost of equity, and the relative read lands near 56 dollars. Only by granting the favorable normalization does the picture improve.

Leverage limits the margin for error. Net debt of about 4.54 billion dollars sits at more than 7 times trough operating income, and while the company can service it comfortably in a normal year, a prolonged housing downturn squeezes both the numerator and the denominator. The aggressive buyback, attractive in good times, also consumes the cash that could otherwise cushion the balance sheet through the trough. The bear case is that paying an upper-half multiple for a fixed-cost cyclical at the wrong point in the housing cycle, on a normalized-earnings figure inflated by a boom, leaves the stock exposed if housing stays weak.

Valuation

Builders FirstSource is a cyclical, and the valuation turns entirely on whether you anchor to trough earnings or to through-the-cycle earnings. At about 80 dollars the price works out to roughly 19 times trailing operating income, implying about 15 percent annual operating growth for five years, in the upper half of the peer range. But that trailing operating income, around 618 million dollars, is depressed by a housing downturn, so the multiple overstates how expensive the business is at a normal level of activity.

The model families split exactly on the cycle question. The asset and excess-return families land low, between roughly 25 and 29 dollars, because they use a trailing return on equity of 7.3 percent that reflects the trough. The relative and exit-multiple reads land in the 50s to mid-80s. The standout is the earnings-power family: normalized Earnings Power Value lands near 163 dollars, far above the price, because it capitalizes the five-year average operating income of about 2.1 billion dollars rather than the trough. The cash-flow read at about 38 dollars uses current depressed free cash flow. The enormous spread, from the 20s to over 160 dollars, is not noise; it is the difference between valuing the company at the bottom of its cycle and valuing it across the cycle.

The honest synthesis is that the stock is expensive on trough numbers and cheap on normalized numbers, and the truth depends on where housing settles. The bull leans on the normalized 163 dollar figure and the shrinking share count; the bear notes that the five-year average includes a boom and may overstate the normal. Net debt at more than 7 times trough operating income is manageable but adds risk through a prolonged downturn. The buyer at 80 dollars is making a cyclical-timing bet: that housing recovers toward its through-the-cycle norm while management keeps retiring shares, against the risk that the recent average was a peak.

Catalysts

The quarterly earnings cadence against the housing cycle is the central catalyst. Q1 2026 revenue of 3.287 billion dollars beat expectations by about 3.6 percent even as it fell 10.1 percent year over year, with gross margin near 30 percent but down 220 basis points and adjusted EBITDA down roughly 42 percent (GuruFocus, StockStory). Each print is a read on whether the trough is deepening or stabilizing; the company guided full-year 2026 net sales to 14.6 to 15.6 billion dollars.

The housing-demand turn is the macro catalyst that would re-rate the stock. Single-family starts drive volume, and they are constrained by elevated mortgage rates and affordability; a sustained move lower in rates would lift starts and flow directly into BLDR's revenue and its high-fixed-cost margin leverage (Yahoo Finance). Analysts have trimmed price targets, from about 171 dollars toward 150, balancing caution on housing against confidence in the company's scale and margin execution (Simply Wall St).

Capital allocation and the value-added mix are the company-controlled catalysts. Active share repurchases continue to shrink the share count, amplifying per-share earnings when the cycle recovers, and the push into higher-margin manufactured components and digital tools is the lever management can pull regardless of the cycle (StocksToTrade). The watch items are the pace of housing starts, the gross-margin trend as commodity prices move, and the continued cadence of buybacks.

Peer Cohorts (Per Segment, With Filing Citations)

Builders FirstSource (consolidated) (reported)

• FAST (FASTENAL CO)
• (no filing in the citation store)
• FND (Floor & Decor Holdings, Inc.)
• (no filing in the citation store)
• LOW (LOWE’S COMPANIES, INC.)
• (no filing in the citation store)
• SHW (THE SHERWIN-WILLIAMS COMPANY)
• (no filing in the citation store)
• TSCO (TRACTOR SUPPLY CO /DE/)
• (no filing in the citation store)
• HD (HOME DEPOT, INC.)
• (no filing in the citation store)
• POOL (POOL CORPORATION)
• (no filing in the citation store)
• SITE (SiteOne Landscape Supply, Inc.)
• (no filing in the citation store)

Methodology Note

• Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
• Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
• Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
• Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.