Two months ago, news that Builders FirstSource (NASDAQ:BLDR) would be bulking up in the construction supplies segment by buying Denver-based ProBuild Holdings LLC sent the former’s shares soaring. Two months later, investors in Builders FirstSource have further reason to cheer: Despite the stock doubling in value over just the past three months, and sextupling over the past three-and-a-half years, insiders still think Builders FirstSource is enough of a bargain to be worth buying.
In evidence of which, on Friday we learned that company director Craig Arthur Steinke acquired 16,000 shares of Builders FirstSource on June 11, paying $12.41 per share, and lifting his stake in the company to 150,632 shares total.
Perhaps even more significantly for investors, Steinke’s purchase breaks a trend of massive insider swelling at Builders FirstSource, evident over the past year. According to SEC filings, insiders have sold 2 million more shares than they’ve bought of the company over the past 12 months. Even worse-sounding, the past three months have seen 2.6 million more shares insider-sold than bought, as insider buying basically ground to a halt. Indeed, Steinke’s is the only reported instance of insiders paying up to acquire the stock, versus five reported insider sales in the past three months.
So does this purchase sound the “all clear” for outside investors? Is it now safe to resume buying?
What does it mean to you?
Hardly. While the attraction of owning a stock on a tear is undeniable, you still need to keep a close eye on the price of the stock you’re buying. In the case of Builder’s FirstSource, we’re looking at a company valued at 93 times earnings — and even more expensive when you factor in the company’s $372 million in net debt.
Even if analyst estimates of Builder’s FirstSource’s long-term growth prospects (30% annualized over the next five years, according to Yahoo! Finance) prove accurate, 93 times earnings is an awful lot to pay for that growth. Adding to the danger, Builder’s FirstSource pays its shareholders no dividend whatsoever, such that if the stock disappoints on earnings going forward (and it’s missed its last four “earnings estimates” — did we mention that?), and investors decide to punish it, a buyer today won’t even have the comfort of regular dividend checks to lessen the sting of the capital losses.
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