Foundation Building Materials (NYSE: FBM) and Headwaters (NYSE:HW) are both small-cap construction companies, but which is the better investment? We will contrast the two companies based on the strength of their institutional ownership, risk, profitability, earnings, dividends, analyst recommendations and valuation.

Institutional & Insider Ownership

95.0% of Foundation Building Materials shares are held by institutional investors. Comparatively, 86.8% of Headwaters shares are held by institutional investors. 6.4% of Headwaters shares are held by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company is poised for long-term growth.

Analyst Ratings

This is a breakdown of current ratings for Foundation Building Materials and Headwaters, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Foundation Building Materials 0 2 7 0 2.78
Headwaters 0 1 0 0 2.00

Foundation Building Materials currently has a consensus price target of $18.43, suggesting a potential upside of 30.79%. Headwaters has a consensus price target of $24.25, suggesting a potential upside of 0.04%. Given Foundation Building Materials’ stronger consensus rating and higher possible upside, research analysts clearly believe Foundation Building Materials is more favorable than Headwaters.

Profitability

This table compares Foundation Building Materials and Headwaters’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Foundation Building Materials -0.11% -2.98% -0.68%
Headwaters 1.98% 5.96% 1.68%

Earnings and Valuation

This table compares Foundation Building Materials and Headwaters’ top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Foundation Building Materials $1.39 billion 0.43 -$28.37 million ($0.12) -117.42
Headwaters N/A N/A N/A $0.69 35.13

Headwaters has lower revenue, but higher earnings than Foundation Building Materials. Foundation Building Materials is trading at a lower price-to-earnings ratio than Headwaters, indicating that it is currently the more affordable of the two stocks.

About Foundation Building Materials

Foundation Building Materials, Inc. is a specialty distributor of wallboard and suspended ceiling systems in the United States and Canada. The Company’s segments include Specialty Building Products and Mechanical Insulation. The Company fabricates and distributes its products for specialty contractors seeking to improve or maintain energy efficiency in a range of commercial and industrial buildings. It serves markets across the United States and in Canada. Specialty building products segment distributes wallboard and accessories, metal framing, suspended ceiling systems and other products. Other products include stucco and Exterior insulation and finish system (EIFS), as well as offerings, such as tools, safety accessories and fasteners. Its Mechanical insulation segment includes insulation solutions for pipes and mechanical systems and the primary end markets served are new non-residential construction, non- residential repair and remodel construction and industrial markets.

About Headwaters

Headwaters Incorporated is a building materials company operating in the building products and construction materials sectors. The Company sells building products, such as manufactured architectural stone, siding accessory products, roof products and concrete block. The Company’s operating segments include building products, construction materials and energy technology. It also markets coal combustion products (CCPs), including fly ash, which is used as a partial replacement for Portland cement in concrete. The Building Products segment is engaged in designing, manufacturing and marketing of siding accessories used in residential repair and remodeling, and new residential construction applications. The Materials segment markets fly ash in the construction materials sector. The Energy Technology segment is involved in heavy oil upgrading processes through the sale of its HCAT catalyst material. It sells catalytic materials to certain refineries engaged in heavy oil upgrading.

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