CD&R Investment Associates, a major holder in Beacon Roofing Supply (BECN) recently added 563,611 shares to their holdings. The buy increased the fund’s stake by over 4 percent, and came to a purchase price of just over $30 million.
Insiders at the company have largely been sellers in the past few months. Shares have nearly tripled since the pandemic low, thanks to rising home prices. This marks the first insider buy since last May.
Overall, company insiders outside of funds own less than 1 percent of shares.
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While Beacon has seen its revenues grow 11 percent in the past year, the company has been unprofitable. Shares have gone from 7 times forward earnings to 18 times estimated forward earnings in that timeframe. Similar jumps in valuation have occurred with price to book and price to sales. In short, this is a company whose stock is benefitting from headline news about the housing market without the company’s operations benefitting from it.
Action to take: The company’s roofing supplies and sales could lead higher in time. But given the fundamentals, shares aren’t a buy here. Traders looking to profit from the current uptrend could look at buying an at-the-money call.
The October $55 call is just over $1.00 in-the-money. It could fare well if shares continue higher, or if there’s higher-than-average activity during the summer hurricane season. With a bid/ask spread of about $7.00, traders should look for mid-to-high double digit gains, and should look to take quick profits if the rally in shares comes to an end.
Disclosure: The author of this article has no positions in the stock mentioned here, but may make a trade on this company after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.