Installed Building Products: Unsustainable Growth and the Need for a Course Correction

Installed Building Products (NYSE: IBP) is the second largest new residential insulation installer in the US. IBP experienced significant revenue growth since its IPO in 2014. By 2022, its revenue had increased by 5-fold while its total assets had risen by 8 times. But the growth came from a combination of acquisitions and tailwinds from a growing construction sector.

But this is not a sustainable growth model as the average Reinvestment rate over the past 9 years exceeded 100 %. Its Debt Equity ratio went from 0.6 in 2014 to 1.9 in 2022.

IBP will need to reduce acquisitions and Reinvestments to sustainable levels, in line with the expected decline in total construction spending. A valuation on such a sustainable Reinvestment rate and slowdown in growth showed that there is no margin of safety