Headwaters (NYSE: HW) and Builders FirstSource (NASDAQ:BLDR) are both cyclical consumer goods & services companies, but which is the better stock? We will contrast the two businesses based on the strength of their valuation, dividends, institutional ownership, profitability, analyst recommendations, earnings and risk.

Insider and Institutional Ownership

86.8% of Headwaters shares are owned by institutional investors. Comparatively, 85.2% of Builders FirstSource shares are owned by institutional investors. 6.4% of Headwaters shares are owned by insiders. Comparatively, 14.6% of Builders FirstSource shares are owned by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company is poised for long-term growth.

Profitability

This table compares Headwaters and Builders FirstSource’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Headwaters 1.98% 5.96% 1.68%
Builders FirstSource 2.60% 43.83% 4.71%

Valuation and Earnings

This table compares Headwaters and Builders FirstSource’s revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Headwaters N/A N/A N/A $0.56 43.29
Builders FirstSource $6.67 billion 0.25 $367.24 million $1.52 9.60

Builders FirstSource has higher revenue and earnings than Headwaters. Builders FirstSource is trading at a lower price-to-earnings ratio than Headwaters, indicating that it is currently the more affordable of the two stocks.

Analyst Recommendations

This is a summary of current recommendations and price targets for Headwaters and Builders FirstSource, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Headwaters 1 6 1 0 2.00
Builders FirstSource 0 2 4 0 2.67

Headwaters currently has a consensus price target of $23.44, indicating a potential downside of 3.31%. Builders FirstSource has a consensus price target of $17.33, indicating a potential upside of 18.80%. Given Builders FirstSource’s stronger consensus rating and higher probable upside, analysts plainly believe Builders FirstSource is more favorable than Headwaters.

Volatility & Risk

Headwaters has a beta of 1.7, indicating that its stock price is 70% more volatile than the S&P 500. Comparatively, Builders FirstSource has a beta of 2.16, indicating that its stock price is 116% more volatile than the S&P 500.

Summary

Builders FirstSource beats Headwaters on 10 of the 11 factors compared between the two stocks.

Headwaters Company Profile

Headwaters Incorporated is a building materials company operating in the building products and construction materials sectors. The Company sells building products, such as manufactured architectural stone, siding accessory products, roof products and concrete block. The Company’s operating segments include building products, construction materials and energy technology. It also markets coal combustion products (CCPs), including fly ash, which is used as a partial replacement for Portland cement in concrete. The Building Products segment is engaged in designing, manufacturing and marketing of siding accessories used in residential repair and remodeling, and new residential construction applications. The Materials segment markets fly ash in the construction materials sector. The Energy Technology segment is involved in heavy oil upgrading processes through the sale of its HCAT catalyst material. It sells catalytic materials to certain refineries engaged in heavy oil upgrading.

Builders FirstSource Company Profile

Builders FirstSource, Inc. is a supplier and manufacturer of building materials, manufactured components and construction services to professional contractors, sub-contractors, remodelers and consumers. The Company’s operating segments include Northeast, Southeast, South and West. As of December 31, 2016, it operated at 400 locations in 40 states across the United States. It offers an integrated solution to its customers providing manufacturing, supply and installation of a range of structural and related building products. Its manufactured products include factory-built roof and floor trusses, wall panels and stairs, vinyl windows, custom millwork and trim, as well as engineered wood that it designs, cuts and assembles for each home. It assembles interior and exterior doors into pre-hung units. Additionally, it supplies customers with offering of professional grade building products, such as dimensional lumber and lumber sheet goods, and various window, door and millwork lines.

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