Don’t Forget About The Little Guys
I will admit that I have been focusing a lot of my own attention at the larger, blue-chip, dividend companies in my search for the best post-pandemic investments. It makes sense that larger, well-capitalized companies are going to have an easier time of things and are therefore the safe investment. That doesn’t mean that there aren’t small-cap players out there who are not only in a position to survive in the new world but to thrive in it. Cornerstone Building Brands is one such company.
If you haven’t already guessed Cornerstone Building Brands (NYSE:CNR) is a construction company. To be more specific, it is a construction products company. To be even more specific, it is a construction products company in business selling after-market, upgrade and remodeling supplies. A market that has been supporting double-digit growth accelerations for companies like Tractor Supply Company (NASDAQ:TSCO), Wayfair (NYSE:W), and Overstock.com (NASDAQ:OSTK). So, what exactly is it that Cornerstone Building Brands do? It sells siding and windows.
Cornerstone Building Brands: A Solid Report
Cornerstone Building Brands has been delivering strong growth for the last couple of years so it was really no surprise to see that strength continues. Revenue fell in the 2nd quarter but that was to be expected, not only were sales impacted during the shutdown but installation was too. That said, the $1.08 billion reported came in just shy of $0.90 billion or 500% better than expected. That’s 500%, not 500 basis points.
The best news is that EPS was also quite strong. Both adjusted and GAAP EPS beat consensus by $0.35 to come in positive versus the expectation for loss. That’s important for this company because it is highly leveraged, cash flow is important to pay down the debt that is fueling its explosive growth.
On a net basis, income is up more than 53% from last year proving the growth strategy is working and total debt is slowly coming down. During the quarter, net debt came down by $44 million while liquidity was also improved. On the operations end, an upgrade to a windows manufacturing plant doubled capacity and improved productivity by 50%.
Looking forward, the company says its backlog of orders is at record levels and is expecting strong results later in the year. The backlog is so strong execs raised the revenue guidance to a range of $1.16 to $1.24 billion or up 8% to 15% from the prior quarter and well above consensus. Earnings and cash from operations are also expected to increase, funds with which the company plans to pay down additional debt.
The Technical Outlook: This Is A Game-Changer For Cornerstone Building Brands
Cornerstone Building Brands is a small-cap growth company that is not only executing on a long-term strategy but also supported by post-pandemic trends. The 2nd quarter earnings report shows that not only is the company weathering the storm but that it is in position to come out the other side in even better condition than before. There may be some resistance to overcome, but this news is a game-changer for this stock and one that will lead to a significant upside in the quarters to come.
The 2nd quarter report sparked a nearly 20% spike in share prices that smacks of bull market conditions. The candle met resistance at a previous high that may contain prices in the near to short-term. The candle is a fairly stunning doji that could turn into a Shooting Star if the market does not follow through on yesterday’s surge. In that scenario, I see price action moving down to close the gap at $7.50. If the market does follow through, my trigger for entry would be a close above yesterday’s high at $9.40.
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