The home improvement industry is experiencing a boom, thanks to the growing implementation of remodeling projects, increasing home prices, and rising preference toward low-energy living spaces.
Given the sustained demand for home improvement goods and services, it could be wise to buy quality home improvement stocks Acuity Brands, Inc. (AYI), Tile Shop Holdings, Inc. (TTSH), and Bassett Furniture Industries, Incorporated (BSET). Let’s discuss this in detail.
During the COVID-19 pandemic, there was a dramatic growth in remodeling activity, driven by the need for better entertainment and work-from-home areas due to extended periods spent indoors. Moreover, last year, the home improvement industry performed considerably well as the trend sustained.
According to a report by the Harvard Joint Center for Housing Studies, homeowners sought to improve their living spaces, resulting in a record-breaking $567 billion remodeling market in 2022.
After several years of double-digit growth, the home renovation boom continues this year, driven by the rising implementation of renovation projects and growing preference toward energy-efficient living spaces.
The Inflation Reduction Act (IRA), signed into law last year, introduced incentives for home renovation projects. The legislation provides additional tax savings for homeowners who make energy-efficient upgrades to their homes.
Moreover, as interest rates and property costs rise, people opt for home renovation over buying new houses, leading to the increasing popularity of home improvement projects. The DIY home market has also grown with the availability of online tutorials and resources, empowering more people to take on DIY projects.
Abbe Will, Associate Project Director of the Remodeling Futures Program, said, “While the pace of expenditures is expected to slow substantially this year, we’ve raised our projection for the remodeling market size in 2023 by about $45 billion, or 10.2 percent, to $485 billion.”
Investor’s interest in home improvement stocks is evident from the Dow Jones US Home Improvement Retailers Index’s 11.3% returns over the past six months.
Given the industry tailwinds, fundamentally strong home improvement stocks AYI, TTSH, and BSET could be ideal investments now.
Let's now discuss the fundamentals of these stocks:
Acuity Brands, Inc. (AYI)
AYI is an industrial technology firm that leverages technology to address problems in spaces and light. It operates through two segments, Acuity Brands Lighting and Lighting Controls (ABL); and Intelligent Spaces Group (ISG).
On April 14, AYI announced a definitive agreement to acquire KE2 Therm Solutions, Inc., which develops intelligent refrigeration control solutions. This move marks AYI’s expansion into the commercial refrigeration controls market as it shifts from analog to digital controls. This move is anticipated to boost AYI's growth and revenue.
AYI’s trailing-12-month gross profit margin of 42.09% is 40.8% higher than the 20.90% industry average. Likewise, the stock’s trailing-12-month levered FCF margin of 8.89% is 106.3% higher than the 4.31% industry average.
AYI’s net sales increased 3.8% year-over-year to $943.60 million in the fiscal 2023 second quarter that ended February 28. Its adjusted operating profit rose 7.7% from the year-ago value to $132.10 million. The company’s adjusted net income increased 8.8% from the prior-year period to $99 million, while adjusted EPS grew 19.1% year-over-year to $3.06.
The consensus revenue estimate of $4.09 million for the fiscal year (ending August 2023) reflects a 2.1% year-over-year improvement. Likewise, the consensus EPS estimate of $13.99 for the current year indicates a 9.1% rise year-over-year. Moreover, the company surpassed its consensus EPS estimates in all four trailing quarters, which is impressive.
The stock marginally plunged over the past five days to close the last trading session at $157.40.
AYI’s positive outlook is apparent in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
AYI has an A grade for Quality and Value. It has topped the 70-stock Home Improvement & Goods industry.
In addition to the POWR Ratings I’ve just highlighted, you can see AYI’s ratings for Stability, Growth, Sentiment, and Momentum here.
Tile Shop Holdings, Inc. (TTSH)
TTSH is a specialty retailer that sells natural stone and man-made tiles, setting and maintenance materials, and related accessories. The company offers natural stone products under the Rush River and Fired Earth brands; and manufactures setting and maintenance materials under the Superior brand name.
TTSH’s trailing-12-month gross profit margin of 65.6% is 86.9% higher than the 35.11% industry average. Moreover, the stock’s trailing-12-month asset turnover ratio of 1.15x compares to the 1.04x industry average.
For the fourth quarter that ended December 31, 2022, TTSH registered a net income and EPS of $1.45 million and $0.03, respectively. As of December 31, 2022, TTSH’s total current assets increased 15.2% year-over-year to $146.40 million. The company’s total assets stood at $354.82 million, compared to $340.76 million as of December 31, 2021.
Analysts expect TTSH’s revenue to increase 3.5% year-over-year to $103 million for the quarter (ending June 2023). The company’s EPS for the ongoing quarter is expected to grow 42.9% from the previous year’s period to $0.10. Moreover, the company’s EPS is expected to grow 20% annually over the next five years.
Shares of TTSH have gained 12.3% over the past six months to close the last trading session at $4.43.
TTSH’s solid fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
TTSH has an A grade for Sentiment and a B for Quality. The stock is ranked #4 out of 70 stocks within the same industry.
Click here to access additional TTSH ratings for Value, Growth, Stability, and Momentum.
Bassett Furniture Industries, Incorporated (BSET)
BSET manufactures, markets, and retails home furnishings and operates through two segments, Wholesale and Retail company-owned Stores. It runs 58 company-owned stores and 33 licensee-owned stores. Additionally, the company provides warehousing services to customers in the furniture industry.
On January 11, BSET and Synchrony Financial (SYF), a prominent consumer financing company, announced they would re-establish their partnership to launch a multi-year financing program. By leveraging SYF's data analytics and technology, BSET could give consumers greater buying power and transparency.
The stock’s trailing-12-month gross profit margin of 52.19% is 48.7% higher than the 35.11% industry average. Furthermore, the stock’s trailing-12-month net income margin of 12.88% is 190.9% higher than the 4.43% industry average.
During the first quarter that ended February 25, 2023, BSET’s retail sales increased 1.4% year-over-year to $56 million. As of February 25, 2023, the company’s total current liabilities were $90.58 million, compared to $100.83 million as of November 26, 2022. Also, BSET’s total long liabilities were $107.18 million, compared to $109.84 million as of November 26, 2022.
Analysts expect BSET’s revenue to grow 3.4% year-over-year to $450 million for the fiscal year ending November 2024. The company’s EPS for the same year is expected to increase by 60.9% year-over-year to $1.92. The stock slumped 2.1% intraday to close the last trading session at $14.51.
BSET’s POWR Ratings reflect its promising prospects. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
The stock has an A grade for Sentiment and a B for Value and Quality. It has ranked #2 in the 70-stock Home Improvement & Goods industry.
To see additional POWR Ratings for Stability, Growth, and Momentum for BSET, click here.
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AYI shares were trading at $157.76 per share on Monday afternoon, up $0.36 (+0.23%). Year-to-date, AYI has declined -4.60%, versus a 8.02% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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