ROAD Stock Trading at a Premium: Should You Wait or Dive In?

Construction Partners, Inc. ROAD is currently trading at a premium compared with the Zacks Building Products - Miscellaneous industry on a forward 12-month price-to-earnings (P/E) ratio basis. With a forward 12-month P/E ratio of 40.7, the company stands above the broader Construction sector and the S&P 500 index, which have 12-month P/E ratios of 18.76 and 22.64, respectively.

The company’s vertically integrated business model, alongside diverse offerings across products and services, amid a favorable public infrastructure spending backdrop, is driving its prospects in an uncertain macroeconomic environment.

Although the premium valuation of the stock tends to cloud the judgment of investors in its favor, it indicates strong potential for the company when compared with its market peers, anticipating robust long-term growth.

During the past three months, ROAD stock trended upward 37.1%, outperforming the industry and the sector, as evidenced by the chart below. Moreover, it can also be observed that, during the same time frame, the stock significantly outshone a few of the renowned market players, including Granite Construction Incorporated GVA, Martin Marietta Materials, Inc. MLM and Vulcan Materials Company VMC.

What is Driving Construction Partners’ Momentum?

Favorable Business Model: Construction Partners exercises a vertically integrated business model that notably offers it a competitive advantage over its peers and helps in leveraging market opportunities for its profitability. Through vertical integration, the company is able to optimize its supply chain and reduce volatility risks, while increasing supplier flexibility and enhancing its margins. Besides, through this strategic business model, it aims to support its ROAD-Map 2027 goals, which include annual revenue growth in the range of 15-20% and EBITDA margin expansion in the range of 13-14%.

Accretive Organic & Inorganic Efforts: The company’s diversified business offerings, including manufacturing and construction services, position it well for several growth opportunities in the market, organically as well as inorganically. Through organic growth, the company expands its services or facilities in the existing markets via upgrades and similar activities. Inorganically, it engages in acquiring new businesses that complement its existing business and expand its market reach. Furthermore, through greenfield expansion, the company enters new markets and upgrades its vertically-integrated business model by establishing manufacturing facilities.

The revolutionary Lone Star Acquisition, completed on Nov. 1, 2024, proved incremental to ROAD’s business. This strategic acquisition of the Texas-based company has enhanced the company’s value and expanded its geographic footprint through 10 HMA plants, four aggregate facilities and one liquid asphalt terminal, and accelerated achieving the ROAD-Map 2027 targets.

Upbeat Fiscal 2025 Views: Backed by favorable market fundamentals, Construction Partners has raised its fiscal 2025 outlook during the first-quarter earnings call, reflecting robust year-over-year growth and inducing investors’ optimism.

For the full fiscal year, the company now expects revenues to be between $2.77 billion and $2.83 billion (up from the previous range of $2.66-$2.74 billion), indicating significant 52.2-55.5% year-over-year growth. Adjusted EBITDA is now forecasted between $410 million and $430 million (up from the previous range of $375-$400 million), reflecting year-over-year growth between 85.9% and 94.9%. Adjusted EBITDA margin is now expected in the range of 14.8-15.2% (up from the 14.1-14.6% range expected earlier), reflecting year-over-year growth of 12.1%.

EPS Trend Favors ROAD

ROAD’s earnings estimates for fiscal 2025 and 2026 have trended upward in the past 60 days to $2.17 and $2.73 per share, respectively. The estimated figures for fiscal 2025 and 2026 reflect year-over-year growth of 63.2% and 25.7%, respectively.

Analysts’ sentiments are likely to have been boosted by the favorable market fundamentals and the company’s upbeat fiscal 2025 expectations.

ROAD Stock Trading Above 50 & 200-Day SMA

Technical indicators suggest a continued strong performance for Construction Partners. From the graphical representation given below, it can be observed that ROAD stock is riding above both the 50-day simple moving average (SMA) and the 200-day SMA, signaling a bullish trend. The technical strength underscores positive market sentiment and confidence in ROAD’s financial health and prospects.

50 & 200-Day Moving Averages

Should You Invest in ROAD: Yay or Nay?

This civil infrastructure company’s prospects are gaining from its vertically integrated business model, which is incrementally aiding it in reducing supply-chain risks and expanding its margins. Especially in the current uncertain macro environment, this strategic business model is catalyzing its prospects amid a robust public infrastructure spending trend.

Analysts’ optimism regarding ROAD stock is reflected in three of the five recommendations, pointing at a "Strong Buy” representing 60% of all recommendations.

Thus, after considering the favorable fundamentals and the trends of the technical indicators, this Zacks Rank #1 (Strong Buy) stock will be a decent choice to be added to the portfolio for now. You can see the complete list of today’s Zacks #1 Rank stocks here.

This article originally published on Zacks Investment Research (zacks.com).

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