The home improvement industry is expected to grow due to homeowners' increasing focus on property value and aging infrastructure, smart technology adoption, eco-friendly practices, and sustainable living trends as consumers seek environmentally-conscious products and services.
Therefore, investors could consider buying fundamentally strong home improvement stocks such as Builders FirstSource, Inc. (BLDR), Acuity Brands, Inc. (AYI), and Steelcase Inc. (SCS). These stocks have been showing strong momentum lately and will likely maintain the same in the near term.
Before diving deeper into the fundamentals of these stocks, let’s understand what’s shaping the home improvement industry’s prospects.
Falling mortgage rates, a rise in housing starts and building permits, and an increase in existing home sales are likely to increase spending in the home improvement sector.
Home remodeling, repair, and new construction drive demand for various home improvement products. Homeowners are looking to boost property value and improve living spaces, and technology improvements like visualization apps and 3D software are enhancing the process. The global home improvement market is expected to reach $1.40 trillion by 2032, growing at a CAGR of 5.9%.
Recently, there has been an increased interest in do-it-yourself (DIY) projects. This trend has been fueled by the availability of online resources and tutorials that make it easier for individuals to take on home improvement projects themselves. The global DIY home improvement market is expected to reach $128.76 billion by 2028, growing at a CAGR of 3.9%.
According to a recent smart home survey, as many as 69.91 million households in the United States are actively using smart home devices in 2024. This is a 10.2% increase over the 63.43 million recorded in 2023.
Also, according to smart house data, the U.S. smart home market is expected to grow even further. From 2025 to 2028, annual growth rates are expected to be 10.2%, with more than 100 million households using smart devices by 2028.
Considering these conducive trends, let’s examine the fundamentals of the three best Home Improvement & Goods stocks, starting with the third choice.
Stock #3: Builders FirstSource, Inc. (BLDR)
BLDR manufactures and supplies building materials, manufactured components, and construction services to professional homebuilders, sub-contractors, remodelers, and consumers in the U.S.
In terms of the trailing-12-month Return on Common Equity, BLDR’s 31.78% is 162.2% higher than the 12.12% industry average. Likewise, its 15.99% trailing-12-month EBITDA margin is 17.2% higher than the industry average of 13.64%. Furthermore, its 14.67% trailing-12-month Return on Total Assets is 207.7% higher than the 4.77% industry average.
For the fiscal fourth quarter that ended December 31, 2023, BLDR’s net sales and gross margin stood at $4.15 billion and $1.46 billion, respectively. Moreover, its adjusted EBITDA stood at $685.50 million.
For the same quarter, its adjusted net income stood at $439.30 million, while adjusted net income per share increased 10.6% from the year-ago quarter to $3.55.
For the quarter ending June 30, 2024, BLDR’s revenue is expected to increase 6.9% year-over-year to $4.84 billion. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 151.9% to close the last trading session at $206.61.
BLDR’s stock is trading above its 50-day and 200-day moving averages of $184.24 and $147.44, respectively, indicating an uptrend.
BLDR’s POWR Ratings reflect this promising outlook. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
BLDR has an A grade for Momentum and a B for Quality. Within the B-rated Home Improvement & Goods industry, it is ranked #14 out of 57 stocks. To see the additional ratings of BLDR for Growth, Value, Stability, and Sentiment, click here.
Stock #2: Acuity Brands, Inc. (AYI)
AYI offers lighting, lighting controls, building management systems, and location-aware applications worldwide. It operates in two segments: Acuity Brands Lighting and Lighting Controls (ABL) and the Intelligent Spaces Group (ISG). Its brands include A-Light, Aculux, American Electric Lighting, Cyclone, Dark to Light, eldoLED, Eureka, and Gotham.
On January 30, 2024, AYI’s brand Gotham Lighting, an established innovator and manufacturer of architectural downlighting, announced the IVO™ Shallow Recessed downlight, the first luminaire from the new IVO family. The IVO Shallow Recessed downlight addresses space limitations, fitting into spaces as shallow as 2 inches while delivering exceptional performance.
The IVO™ Shallow Recessed downlight is perfect for new construction and remodel projects, and it is straightforward to install. It also symbolizes Gotham's commitment to sustainability and an environmentally responsible approach.
AYI’s trailing-12-month gross profit margin of 44.36% is 45.9% higher than the industry average of 30.41%. Its trailing-12-month asset turnover ratio of 1.13x is 42% higher than the industry average of 0.79x. Also, its 12.18% trailing-12-month levered FCF margin is 83.4% higher than the industry average of 6.64%.
AYI’s net sales for the fiscal first quarter that ended on November 30, 2023, came in at $934.70 million. The company’s adjusted operating profit stood at $153.90 million, up 9.9% from the prior year’s quarter.
In addition, the company’s adjusted net income and adjusted EPS were $116.80 million and $3.72, respectively, increases of 8.6% and 13.1% year-over-year. Its adjusted EBITDA amounted to $166.70 million, representing an increase of 8.9% over the prior year quarter.
For the quarter ending August 31, 2024, AYI’s revenue is expected to increase 2.4% year-over-year to $1.03 billion. Its EPS for the quarter ended February 29, 2024, is expected to increase 4.7% year-over-year to $3.20. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 61.5% to close the last trading session at $266.03.
The stock is trading above its 50-day and 200-day moving averages of $242.97 and $189.60, respectively, indicating an uptrend.
AYI’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It is ranked #8 in the same industry. It has an A grade for Quality and a B for Sentiment. Click here to see AYI's additional Growth, Value, Momentum, and Stability ratings.
Stock #1: Steelcase Inc. (SCS)
SCS offers a portfolio of furniture and architectural products internationally. The company operates through the Americas, EMEA, and other segments. Its portfolio comprises furniture systems, seating, storage, fixed and height-adjustable desks, lighting, task chairs, and textiles. It serves corporate, government, healthcare, education, and retail customers.
SCS’ trailing-12-month gross profit margin of 31.78% is 4.5% higher than the industry average of 30.41%. Likewise, the stock’s trailing-12-month levered FCF margin of 9.59% is 44.4% higher than the industry average of 6.64%. Additionally, its 1.41x trailing-12-month asset turnover ratio is 77.8% higher than the industry average of 0.79x.
During the fourth quarter that ended February 24, 2024, SCS reported revenue of $775.20 million. Its gross profit rose 1.2% from the year-ago value to $242.10 million. Also, its net income came in at $21.30 million, up 35.7% year-over-year. The company’s adjusted earnings per share came in at $0.23, an increase of 21.1% year-over-year.
Analysts expect SCS’ EPS for quarter ending May 30, 2024, to increase 11.1% year-over-year to $0.10. Its revenue for the quarter ending August 31, 2024, is expected to grow marginally year-over-year to $857.70 million. It surpassed the consensus EPS estimates in each of the trailing four quarters. SCS’ shares have gained 64.8% over the past year to close the last trading session at $11.86.
The stock is trading above its 50-day and 200-day moving averages of $12.85 and $10.73, respectively, indicating an uptrend.
It’s no surprise that SCS has an overall A rating, equating to a Strong Buy in our POWR Ratings system.
It has an A grade for Value and a B for Growth, Momentum, and Quality. It is ranked #4 in the Home Improvement & Goods industry. Beyond what is stated above, we’ve also rated SCS for Stability and Sentiment. Get all SCS ratings here.
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BLDR shares were trading at $212.99 per share on Thursday morning, up $6.38 (+3.09%). Year-to-date, BLDR has gained 27.58%, versus a 10.47% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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