For your consideration: Hardwoods Distribution Inc.
Distribution of hardwoods inc.
Income (2020) $ 1.2 billion
Profit (2020) $ 37.6 million
Three-year share price gain 231%
P / E ratio (next) 13.9
Even more than before the pandemic, we live in an HGTV world. Construction and renovation shows “seem to be on every channel these days,” says Faiz Karmally, vice president and chief financial officer of Hardwoods Distribution Inc., who now prefers to use its acronym because it has evolved beyond products. of generic woods.
In an increasingly sophisticated North American construction industry, the company has increased sales by about a seven-fold over the past decade. Even more astounding has been the rise in the HDI stock price, from around $ 3 at the end of 2011 to over $ 40 recently.
Yet investor perceptions of small and large cap stocks often take time to catch up with new perspectives. Without directly saying that HDI stocks remain cheap by many indicators, Karmally says, âI think our story has been underestimated. “
Consider the products first. Ten years ago, most of HDI’s income came from hardwood plywood and lumber. Today, they account for around a third, the rest being generated by higher value-added segments such as staircase parts, moldings, doors and decorative elements, elements with “high-end glossy surfaces.” As Karmally says.
Then there is market diversification. The company has eight distribution centers across Canada and 75 in the United States. About two-thirds of HDI’s sales go to small and medium-sized industrial manufacturers, think of a local cabinet factory that employs 50 people.
The remaining third goes to big box hardware stores and so-called professional resellers, who sell to builders. But there is little risk of a dominant competitor emerging. Much of the construction activity is still regional and local, says Karmally, and HDI is “generally bigger than our competitors and our customers.”
Discipline and strategy extend to making deals. HDI is growing organically, but it has also made 13 acquisitions since 2010, including two large ones in the United States: Rugby Architectural Products in 2016, which added $ 282 million in annual sales, and Novo Building Products last August, which added $ 640 million.
HDI CEO Robert Brown started at the company as CFO in 2004, winning the top position in 2016. Karmally, who joined the company in 2014, says small “introductory” acquisitions were sometimes carried out “outside the CEO’s office” in the old days. Now there is a senior vice president of acquisitions and long term strategy.
Macro factors are also favorable to the HDI. Interest rates remain near all-time lows, the US real estate market has been under-supplied for a decade, and millennials have entered their years of buying and renovating top-notch homes. / John Daly
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