Construction Partners (ROAD)

Civil infrastructure company Construction Partners (NASDAQ:ROAD) fell short of the market’s revenue expectations in Q2 CY2025, but sales rose 50.5% year on year to $779.3 million. On the other hand, the company’s full-year revenue guidance of $2.8 billion at the midpoint came in 0.6% above analysts’ estimates. Its GAAP profit of $0.79 per share was 9.7% below 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 have short-term success, but a top-tier one grows for years. Luckily, Construction Partners’s sales grew at an incredible 25.1% compounded annual growth rate over the last five years. Its growth surpassed the average industrials company and shows its offerings resonate with customers, a great 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 28.6% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.

This quarter, Construction Partners achieved a magnificent 50.5% year-on-year revenue growth rate, but its $779.3 million of revenue fell short of Wall Street’s lofty estimates.

Looking ahead, sell-side analysts expect revenue to grow 28.3% over the next 12 months, similar to its two-year rate. This projection is eye-popping and indicates the market is forecasting success for its products and services.

At StockStory, we prefer high gross margin businesses because they indicate the company has pricing power or differentiated products, giving it a chance to generate higher operating profits.

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 13.4% gross margin over the last five years. Said differently, Construction Partners had to pay a chunky $86.62 to its suppliers for every $100 in revenue.

Construction Partners produced a 16.9% gross profit margin in Q2, in line with 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.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Construction Partners was profitable over the last five years but held back by its large cost base. Its average operating margin of 5.3% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.

On the plus side, Construction Partners’s operating margin rose by 1.9 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q2, Construction Partners generated an operating margin profit margin of 10.6%, up 1.8 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 remarkable 12.4% compounded annual growth rate over the last five years. Despite its operating margin improvement during that time, this performance was lower than its 25.1% annualized revenue growth, telling us that non-fundamental factors such as interest and taxes affected its ultimate earnings.

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 dilution overshadowed its increased operating efficiency and 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 51.3% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q2, Construction Partners reported EPS at $0.79, up from $0.59 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Construction Partners’s full-year EPS of $1.37 to grow 95.5%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

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%, subpar for an industrials business.

Taking a step back, an encouraging sign is that Construction Partners’s margin expanded by 3.7 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 more than its operating profitability.

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 6.7%, 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 3.3 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 $114.3 million of cash and $1.5 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 $346.8 million of EBITDA over the last 12 months, we view Construction Partners’s 4.0× net-debt-to-EBITDA ratio as safe. We also see its $75.62 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.

It was great to see Construction Partners’s full-year EBITDA guidance top analysts’ expectations. We were also happy its EBITDA outperformed Wall Street’s estimates. On the other hand, its EPS missed and its revenue fell slightly short of Wall Street’s estimates. Overall, this was a mixed quarter. Still, the stock traded up 10.4% to $103.32 immediately following the results.

Updated: November 11, 2025 at 9:58 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Construction Partners.

There are multiple reasons why we think Construction Partners is an amazing business. For starters, its revenue growth was exceptional over the last five years and is expected to accelerate over the next 12 months. And while its low gross margins indicate some combination of competitive pressures and high production costs, its rising cash profitability gives it more optionality. On top of that, Construction Partners’s astounding 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 41x. Despite the higher valuation, Construction Partners’s fundamentals really stand out, and we like it at this price. We think it deserves a spot in your portfolio.

Wall Street analysts have a consensus one-year price target of $131.17 on the company (compared to the current share price of $109.60), implying they see 19.7% upside in buying Construction Partners in the short term.