Installed Building Products (IBP) – Closing Short Position – down 46% vs. S&P down 10%
We put Installed Building Products (IBP: $34/share) in the Danger Zone on May 21, 2018. At the time, IBP received a Very Unattractive rating. Our short thesis noted the firm’s falling economic earnings, significant cash burn, low profitability vs. peers, and overvalued stock price.
This Danger Zone report, along with all of our research, utilizes our “novel dataset” of footnotes disclosures to get the truth about core earnings, as shown in the Harvard Business School and MIT Sloan paper, “Core Earnings: New Data and Evidence.”
During the nearly two-year holding period, IBP outperformed as a short position, falling 46% compared to a 10% drop for the S&P 500.
IBP’s fundamentals have improved since our original report. Its return on invested capital (ROIC) improved from 10% at the time of our report to 13% in 2019 and economic earnings increased from $7 million to $41 million over the same time. However, IBP is down 51% year-to-date. This drop in valuation, along with improved fundamentals, means IBP now earns an Attractive rating and no longer presents the same risk/reward. We believe it is time to take the gains and close this short position.
Figure 1: IBP vs. S&P 500 – Price Return – Successful Short Call
Sources: New Constructs, LLC and company filings
Note: Gain/Decline performance analysis excludes transaction costs and dividends.
This article originally published on April 1, 2020.
Disclosure: David Trainer, Kyle Guske II, and Matt Shuler receive no compensation to write about any specific stock, style, or theme.
 In Core Earnings: New Data & Evidence, professors at Harvard Business School (HBS) & MIT Sloan empirically show that data is superior to IBES “Street Earnings”, owned by Blackstone (BX) and Thomson Reuters (TRI), and “Income Before Special Items” from Compustat, owned by S&P Global (SPGI).