Headwaters (NYSE: HW) and Foundation Building Materials (NYSE:FBM) are both small-cap cyclical consumer goods & services companies, but which is the superior business? We will compare the two businesses based on the strength of their valuation, profitability, earnings, dividends, institutional ownership, analyst recommendations and risk.

Analyst Ratings

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

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Headwaters 1 1 0 0 1.50
Foundation Building Materials 0 2 7 0 2.78

Headwaters currently has a consensus target price of $24.25, indicating a potential upside of 0.04%. Foundation Building Materials has a consensus target price of $18.43, indicating a potential upside of 27.71%. Given Foundation Building Materials’ stronger consensus rating and higher probable upside, analysts clearly believe Foundation Building Materials is more favorable than Headwaters.

Profitability

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

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

Institutional & Insider Ownership

86.8% of Headwaters shares are held by institutional investors. Comparatively, 92.9% of Foundation Building Materials shares are held by institutional investors. 6.4% of Headwaters shares are held by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company is poised for long-term growth.

Earnings and Valuation

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

Gross Revenue Price/Sales Ratio NetIncome Earnings Per Share Price/Earnings Ratio
Headwaters N/A N/A N/A $0.69 35.13
Foundation Building Materials $1.39 billion 0.44 -$28.37 million ($0.12) -120.25

Headwaters has higher revenue, but lower 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 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.

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.

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