Installed Building Products (IBP)

Building products installation services company Installed Building Products (NYSE:IBP) reported revenue ahead of Wall Street’s expectations in Q1 CY2025, but sales fell by 1.2% year on year to $684.8 million. Its non-GAAP profit of $2.08 per share was 5.5% below analysts’ consensus estimates.

Company Overview

Founded in 1977, Installed Building Products (NYSE:IBP) is a company specializing in the installation of insulation, waterproofing, and other complementary building products for residential and commercial construction.

Traditionally, homebuilders have built competitive advantages with economies of scale that lead to advantaged purchasing and brand recognition among consumers. Aesthetic trends have always been important in the space, but more recently, energy efficiency and conservation are driving innovation. However, these companies are still at the whim of the macro, specifically interest rates that heavily impact new and existing home sales. In fact, homebuilders are one of the most cyclical subsectors within industrials.

Competitors in the building and construction sector include KB Home (NYSE:KBH), Lennar (NYSE:LEN), and PulteGroup (NYSE:PHM).

A company’s long-term sales performance can indicate its overall quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, Installed Building Products grew its sales at an excellent 13.4% compounded annual growth rate. 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. Installed Building Products’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 3.4% over the last two years was well below its five-year trend.

This quarter, Installed Building Products’s revenue fell by 1.2% year on year to $684.8 million but beat Wall Street’s estimates by 1.5%.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and implies its products and services will face some demand challenges. At least the company is tracking well in other measures of financial health.

All else equal, we prefer higher gross margins because they usually indicate that a company sells more differentiated products and commands stronger pricing power.

Installed Building Products’s unit economics are better than the typical industrials business, signaling its products are somewhat differentiated through quality or brand. As you can see below, it averaged a decent 32.2% gross margin over the last five years. That means for every $100 in revenue, roughly $32.20 was left to spend on selling, marketing, R&D, and general administrative overhead.

Installed Building Products’s gross profit margin came in at 32.7% this quarter, marking a 1.2 percentage point decrease from 33.8% 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.

Installed Building Products has been an efficient company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 12.1%.

Analyzing the trend in its profitability, Installed Building Products’s operating margin rose by 2.7 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q1, Installed Building Products generated an operating profit margin of 10.2%, down 2.5 percentage points year on year. Since Installed Building Products’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Installed Building Products’s EPS grew at an astounding 24.5% compounded annual growth rate over the last five years, higher than its 13.4% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into the nuances of Installed Building Products’s earnings can give us a better understanding of its performance. As we mentioned earlier, Installed Building Products’s operating margin declined this quarter but expanded by 2.7 percentage points over the last five years. Its share count also shrank by 7.5%, and these factors together are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Installed Building Products, its two-year annual EPS growth of 5.5% was lower than its five-year trend. This wasn’t great, but at least the company was successful in other measures of financial health.

In Q1, Installed Building Products reported EPS at $2.08, down from $2.47 in the same quarter last 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 Installed Building Products’s full-year EPS of $10.65 to stay about the same.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Installed Building Products has shown impressive cash profitability, enabling it to ride out cyclical downturns more easily while maintaining its investments in new and existing offerings. The company’s free cash flow margin averaged 8.6% over the last five years, better than the broader industrials sector.

Taking a step back, we can see that Installed Building Products’s margin was unchanged during that time, showing its long-term free cash flow profile is stable.

Installed Building Products’s free cash flow clocked in at $71.9 million in Q1, equivalent to a 10.5% margin. This result was good as its margin was 1.4 percentage points higher than in the same quarter last year, but we wouldn’t put too much weight on the short term because investment needs can be seasonal, causing temporary swings. Long-term trends are more important.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Installed Building Products’s five-year average ROIC was 21.3%, placing it among the best industrials companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.

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, Installed Building Products’s ROIC averaged 4 percentage point increases over the last few years. This is a great sign when paired with its already strong returns. It could suggest its competitive advantage or profitable growth opportunities are expanding.

Installed Building Products reported $298.7 million of cash and $976.5 million 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 $496.3 million of EBITDA over the last 12 months, we view Installed Building Products’s 1.4× net-debt-to-EBITDA ratio as safe. We also see its $14.5 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 encouraging to see Installed Building Products beat analysts’ revenue expectations this quarter. On the other hand, its EPS missed significantly and its EBITDA fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock remained flat at $164.49 immediately after reporting.

Updated: May 16, 2025 at 11:18 PM EDT

Before making an investment decision, investors should account for Installed Building Products’s business fundamentals and valuation in addition to what happened in the latest quarter.

Installed Building Products doesn’t top our investment wishlist, but we understand that it’s not a bad business. To kick things off, its revenue growth was impressive over the last five years. And while Installed Building Products’s projected EPS for the next year is lacking, its astounding EPS growth over the last five years shows its profits are trickling down to shareholders.

Installed Building Products’s P/E ratio based on the next 12 months is 15.6x. While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $181.70 on the company (compared to the current share price of $166.37).

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.