Construction Partners (ROAD)

Civil infrastructure company Construction Partners (NASDAQ:ROAD) reported Q1 CY2025 results exceeding the market’s revenue expectations, with sales up 53.9% year on year to $571.7 million. The company’s full-year revenue guidance of $2.8 billion at the midpoint came in 3.7% above analysts’ estimates. Its GAAP profit of $0.08 per share was significantly above analysts’ consensus estimates.

Company Overview

Founded in 2001, Construction Partners (NASDAQ:ROAD) is a civil infrastructure company that builds and maintains roads, highways, and other infrastructure projects.

Construction and maintenance services companies not only boast technical know-how in specialized areas but also may hold special licenses and permits. Those who work in more regulated areas can enjoy more predictable revenue streams - for example, fire escapes need to be inspected every five years. More recently, services to address energy efficiency and labor availability are also creating incremental demand. But like the broader industrials sector, construction and maintenance services companies are at the whim of economic cycles as external factors like interest rates can greatly impact the new construction that drives incremental demand for these companies’ offerings.

Companies competing against Construction Partners include Vulcan Materials (NYSE:VMC), Granite Construction (NYSE:GVA), and Martin Marietta Materials (NYSE:MLM)

A company’s long-term sales performance is one signal of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Thankfully, Construction Partners’s 22% annualized revenue growth over the last five years was incredible. Its growth beat the average industrials company and shows its offerings resonate with customers, a helpful starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Construction Partners’s annualized revenue growth of 23.3% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.

This quarter, Construction Partners reported magnificent year-on-year revenue growth of 53.9%, and its $571.7 million of revenue beat Wall Street’s estimates by 2.1%.

Looking ahead, sell-side analysts expect revenue to grow 30.5% over the next 12 months, an improvement versus the last two years. This projection is eye-popping and implies its newer products and services will fuel better top-line performance.

Gross profit margin is a critical metric to track because it sheds light on its pricing power, complexity of products, and ability to procure raw materials, equipment, and labor.

Construction Partners has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 13.1% gross margin over the last five years. That means Construction Partners paid its suppliers a lot of money ($86.90 for every $100 in revenue) to run its business.

Construction Partners’s gross profit margin came in at 12.5% this quarter, marking a 2 percentage point increase from 10.4% in the same quarter last year. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Construction Partners was profitable over the last five years but held back by its large cost base. Its average operating margin of 4.8% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.

Analyzing the trend in its profitability, Construction Partners’s operating margin might fluctuated slightly but has generally stayed the same over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q1, Construction Partners generated an operating profit margin of 4.8%, up 3.9 percentage points year on year. The increase was encouraging, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Construction Partners’s EPS grew at a decent 8.1% compounded annual growth rate over the last five years. However, this performance was lower than its 22% annualized revenue growth, telling us the company became less profitable on a per-share basis as it expanded.

We can take a deeper look into Construction Partners’s earnings to better understand the drivers of its performance. A five-year view shows Construction Partners has diluted its shareholders, growing its share count by 7.8%. This has led to lower per share earnings. Taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Construction Partners, its two-year annual EPS growth of 67.3% was higher than its five-year trend. This acceleration made it one of the faster-growing industrials companies in recent history.

In Q1, Construction Partners reported EPS at $0.08, up from negative $0.02 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Construction Partners’s full-year EPS of $1.17 to grow 102%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Construction Partners has shown weak cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 4.4%, subpar for an industrials business.

Taking a step back, an encouraging sign is that Construction Partners’s margin expanded by 1.4 percentage points during that time. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability was flat.

Construction Partners’s free cash flow clocked in at $28.07 million in Q1, equivalent to a 4.9% margin. Its cash flow turned positive after being negative in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Construction Partners has shown solid business quality lately, it historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 6.5%, somewhat low compared to the best industrials companies that consistently pump out 20%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Fortunately, Construction Partners’s ROIC averaged 1.8 percentage point increases over the last few years. its rising ROIC is a good sign and could suggest its competitive advantage or profitable growth opportunities are expanding.

Construction Partners reported $101.9 million of cash and $1.42 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $288.3 million of EBITDA over the last 12 months, we view Construction Partners’s 4.6× net-debt-to-EBITDA ratio as safe. We also see its $55.83 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Construction Partners blew past analysts’ revenue, EPS, and EBITDA expectations this quarter. We were also excited it lifted its full-year revenue and EBITDA guidance. Zooming out, we think this was a good print with some key areas of upside. The stock traded up 3.7% to $95.95 immediately following the results.

Updated: May 16, 2025 at 10:08 PM EDT

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Construction Partners, you should also grasp the company’s longer-term business quality and valuation.

There are multiple reasons why we think Construction Partners is an amazing business. To begin with, its revenue growth was exceptional over the last five years, and its growth over the next 12 months is expected to accelerate. And while its low gross margins indicate some combination of competitive pressures and high production costs, its projected EPS for the next year implies the company’s fundamentals will improve. Additionally, Construction Partners’s remarkable EPS growth over the last five years shows its profits are trickling down to shareholders.

Construction Partners’s P/E ratio based on the next 12 months is 43x. Expectations are high given its premium multiple, but we’ll happily own Construction Partners as its fundamentals shine bright. It’s often wise to hold investments like this for at least three to five years, as the power of long-term compounding negates short-term price swings that can accompany high valuations.

Wall Street analysts have a consensus one-year price target of $108.30 on the company (compared to the current share price of $99.03).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

To get the best start with StockStory, check out our most recent stock picks, and then sign up for our earnings alerts by adding companies to your watchlist. We typically have quarterly earnings results analyzed within seconds of the data being released, giving investors the chance to react before the market has fully absorbed the information. This is especially true for companies reporting pre-market.