Simpson (SSD)

Building products manufacturer Simpson (NYSE:SSD) reported Q3 CY2025 results topping the market’s revenue expectations, with sales up 6.2% year on year to $623.5 million. Its GAAP profit of $2.58 per share was 6.9% above analysts’ consensus estimates.

Company Overview

Aiming to build safer and stronger buildings, Simpson (NYSE:SSD) designs and manufactures structural connectors, anchors, and other construction products.

Traditionally, home construction materials companies have built economic moats with expertise in specialized areas, brand recognition, and strong relationships with contractors. More recently, advances to address labor availability and job site productivity have spurred innovation that is driving incremental demand. However, these companies are at the whim of residential construction volumes, which tend to be cyclical and can be impacted heavily by economic factors such as interest rates. Additionally, the costs of raw materials can be driven by a myriad of worldwide factors and greatly influence the profitability of home construction materials companies.

Competitors offering connectors in the building products space include Builders FirstSource (NYSE:BLDR), UFP (NASDAQ:UFPI), and private company USP Structural Connectors.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Luckily, Simpson’s sales grew at an excellent 13.3% compounded annual growth rate over the last five years. Its growth beat the average industrials company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Simpson’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 2.8% over the last two years was well below its five-year trend.

This quarter, Simpson reported year-on-year revenue growth of 6.2%, and its $623.5 million of revenue exceeded Wall Street’s estimates by 3.1%.

Looking ahead, sell-side analysts expect revenue to grow 3.6% over the next 12 months, similar to its two-year rate. This projection is underwhelming and suggests its newer products and services will not catalyze better top-line performance yet.

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.

Simpson has best-in-class unit economics for an industrials company, enabling it to invest in areas such as research and development. Its margin also signals it sells differentiated products, not commodities. As you can see below, it averaged an elite 46.4% gross margin over the last five years. That means Simpson only paid its suppliers $53.64 for every $100 in revenue.

This quarter, Simpson’s gross profit margin was 46.4%, in line with the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, 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 one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

Simpson has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 21.5%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Simpson’s operating margin decreased by 1.5 percentage points 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 Q3, Simpson generated an operating margin profit margin of 22.6%, up 1.1 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.

Simpson’s remarkable 14.2% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.

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.

Simpson’s flat two-year EPS was bad and lower than its 2.8% two-year revenue growth.

Diving into the nuances of Simpson’s earnings can give us a better understanding of its performance. While we mentioned earlier that Simpson’s operating margin expanded this quarter, a two-year view shows its margin has declined. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q3, Simpson reported EPS of $2.58, up from $2.21 in the same quarter last year. This print beat analysts’ estimates by 6.9%. Over the next 12 months, Wall Street expects Simpson’s full-year EPS of $8.21 to grow 2.9%.

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.

Simpson has shown robust cash profitability, enabling it to comfortably ride out cyclical downturns while investing in plenty of new offerings and returning capital to investors. The company’s free cash flow margin averaged 11% over the last five years, quite impressive for an industrials business.

Taking a step back, we can see that Simpson’s margin dropped by 6 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

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 Simpson hasn’t been the highest-quality company lately, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 22.6%, splendid for an industrials business.

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. Over the last few years, Simpson’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Simpson reported $297.3 million of cash and $445.8 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 $538.9 million of EBITDA over the last 12 months, we view Simpson’s 0.3× net-debt-to-EBITDA ratio as safe. We also see its $11.28 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 enjoyed seeing Simpson beat analysts’ revenue expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. On the other hand, its EBITDA missed. Overall, this print was mixed. The stock remained flat at $175.85 immediately after reporting.

Updated: December 4, 2025 at 10:09 PM EST

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

Simpson isn’t a terrible business, but it isn’t one of our picks. Although its revenue growth was impressive over the last five years, it’s expected to deteriorate over the next 12 months and its diminishing returns show management's prior bets haven't worked out. And while the company’s admirable gross margins indicate the mission-critical nature of its offerings, the downside is its declining operating margin shows the business has become less efficient.

Simpson’s P/E ratio based on the next 12 months is 20x. This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're fairly confident there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $194.75 on the company (compared to the current share price of $169.12).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.