Construction Materials Stock Looks to Build Upon Its Upward Momentum

Doman Building Materials Group Ltd. (TSX:DBM) is “well-positioned to benefit from the historically strong building products demand over the next few months,” says one analyst

Capital Ideas Media | July 2, 2021 | SmallCapPower: Inflation concerns, once again, weighed on stocks during the past week, causing sharp declines in equity markets.

(Originally published on Capital Ideas Media on May 18, 2021)

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One theme we’ve touch upon recently, which has contributed to inflationary worries, is the hot housing market. Residential real estate activity is being fueled by ultra-low interest rates, tight supply, and pandemic-related restrictions that have not only boosted household savings but also elevated the lifestyle value of a home as a place where we now do the majority of our work and play.

This has led to more spending on home improvements as well as new home construction to try and keep up with the rising demand for housing.

One Canadian company benefitting from these expenditures is Doman Building Materials Group Ltd. (TSX:DBM), formerly known as CanWel Building Materials Group Ltd. (TSX:CWX). Doman is a national provider of building materials and home renovation products, such as lumber and treated wood and engineered wood products, used for siding, trim, decking and railings. The Company even owns about 117,000 acres of private timberlands as part of its fully-integrated operation.

Doman said it has seen “unprecedented” increases in prices for lumber, plywood and oriented strand board since the second half of 2020, due to limited supply and soaring demand.

During its most-recently reported quarter (Q1 2021), the Company saw its revenue rise 59% year over year to $520 million along with a big boost in its net earnings to $34.2 million.

“We believe that the Company is well-positioned to benefit from the historically strong building products demand over the next few months,” RBC Dominion Securities analyst Paul Quinn wrote recently, saying 2021 should be a record year for DBM.

“With leverage in a more comfortable spot, we think Doman can drive shareholder value by growing opportunistically through M&A and high-return capital projects.”

Mr. Quinn added that Doman “is selling building products as fast as they can be stocked, with inventories reaching record lows,” and management noting that the only ‘bottleneck’ to increased volumes is that sawmills are not producing enough to keep up with demand.

As well, the RBC Dominion Securities analyst said Doman is looking for acquisition targets in the U.S. with growth potential.

In this volatile stock market environment, we like shares of Doman Building Materials Group due to its more than 5% yield but we also see some solid capital appreciation potential as the Company continues to ride the hot housing and home improvement wave.

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