TopBuild, IBD Stock Of The Day, Flashes Buy Signals As Homebuilders Stumble

By BILL PETERS

TopBuild stock is the IBD Stock of the Day. Shares of the company, which installs and distributes insulation materials for the construction industry, are flashing multiple buy signals.

The setup for the company follows upbeat sentiment from management about the state of the housing market, which boomed last year due to low interest rates and pandemic-induced demand, amid signs that the supply of materials and labor remains tight for the industry.

TopBuild Stock

TopBuild stock, up 1.7% to 223.73 on the stock market today, is trying to break out of a cup-with-handle base with a 229.99 buy point. Shares briefly crossed that entry, reaching 231.93 intraday.

Investors could have also bought the stock earlier, after it crossed a short-term resistance level of 223.07. BLD stock is still actionable from that entry.

TopBuild stock was also added to Leaderboard today. Shares have a strong 98 Composite Rating. Their EPS Rating is also 98. The stock's relative strength line bent upward on Thursday, after moving sideways since mid-August.

Along with TopBuild stock, other building-product stocks have performed well recently.

Builders FirstSource, edged up 0.4% to 54.37 Thursday, was still within buy range of a 52.82 entry of a cup-with-handle base. Atkore rose 0.9% to 87.59, working toward reclaiming a  90.18 buy point from a cup base. ATKR also is working on a new short consolidation next to the cup.

'Strong Pent-Up Demand'

TopBuild offers installation services of materials like fiberglass and polyurethane, along with products like windows and rain gutters, through its TruTeam contractor services. The Daytona Beach, Fla., company's installation segment made up around 72% of its sales last year. TopBuild also runs a distribution service for those products.

The company has grown through acquisitions. This week, TopBuild agreed to acquire Distribution International, a distributor of mechanical insulation, in a deal valued at $1 billion.

TopBuild reported second-quarter earnings last month that beat expectations. Net sales jumped 29%.

It also forecast full-year sales between $3.29 billion and $3.37 billion. That forecast was slightly more bullish than one offered in May. The company also announced a $200 million buyback program. TopBuild stock jumped on the results.

"Looking ahead, we expect the residential housing market to remain solid and the commercial market to continue to strengthen," CEO Robert Buck said in the company's earnings release.

He also said the housing boom this time around had sturdier fundamentals to back it up.

"Unlike the housing boom of two decades ago which featured excess supply, rampant speculation and weak credit controls, this current housing growth is being driven by strong pent-up demand, extremely limited housing inventory, and improving economy and low interest rates," he said. 

Homebuilders Stumble

Buck also said that "material and labor constraints for all trades in our industry" had driven TopBuild's growth during the second quarter. But such constraints have represented headaches for other companies.

On Wednesday, homebuilder PulteGroup warned of "increased supply chain disruptions and shortages of key building products." Those shortages, Pulte said, were interfering with its ability to get homes closed.

Shares of Pulte fell on the announcement. So did those of other homebuilders like LGI Homes and Toll Brothers.


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