Loop Capital has maintained its Hold rating and $85.00 price target for GMS (NYSE: GMS), following the company's report of a first-quarter miss for fiscal year 2025 and a lowered outlook.
The firm's analyst cited ongoing margin headwinds as the reason for the maintained position, despite initial expectations for a gross margin normalization in the second quarter of 2025.
GMS Inc (NYSE:GMS). reported that anticipated improvements in the second quarter, due to July's steel framing price increases and the ability to fully offset earlier wallboard price increases, did not materialize.
The company faced challenges as steel framing price increases did not gain traction and wallboard distribution achieved only modest incremental price realization with certain residential customers.
The company has adjusted its second-quarter gross margin forecast to between 31.6% and 31.8%. Additionally, GMS now anticipates it will require an additional two quarters to achieve price/cost parity within its wallboard segment.
The revision comes after the company's expectations to return to a 32% gross margin were unmet.
In other recent news, GMS reported a mixed Q1 performance. Despite market challenges, the company saw a 2.8% increase in net sales, reaching $1.45 billion. However, net income fell to $57.2 million from $86.8 million in the previous year, and adjusted EBITDA also declined to $145.9 million. To navigate these challenges, GMS Inc. has initiated a $25 million cost reduction program and acquired R. S. Elliott to enhance its product offerings.
These developments come amid a decline in demand within the multi-family and commercial sectors, which impacted organic sales and gross margin. Despite this, GMS Inc. remains optimistic, expecting a recovery in end markets as interest rates ease, particularly in single-family sales. As part of its strategy, the company is focusing on acquisitions and cost-reduction measures to improve financial performance.
InvestingPro Insights
In light of GMS Inc.'s recent challenges and the subsequent rating by Loop Capital, key metrics from InvestingPro provide a deeper financial context. The company's market capitalization stands at $3.34 billion, with a Price/Earnings (P/E) ratio of 15.01, which adjusts to 13.46 when considering the last twelve months as of Q1 2025. Despite a modest revenue growth of 3.0% during the same period, GMS Inc. has maintained a gross profit margin of 32.09%, which is closely aligned with the company's adjusted second-quarter gross margin forecast.
InvestingPro Tips suggest that GMS's stock has experienced a significant decline over the past week, but it's important to note that the company's liquid assets exceed its short-term obligations, indicating a level of financial stability. Furthermore, analysts remain optimistic about GMS's profitability for the year, a sentiment supported by the company's profitable performance over the last twelve months. For investors seeking comprehensive analysis, InvestingPro offers additional tips on GMS, which can be explored for more detailed investment strategies.
It's also worth highlighting that GMS does not pay a dividend to shareholders, a factor that might influence investment decisions depending on individual strategies and preferences for income-generating stocks. For those interested in exploring further, additional InvestingPro Tips can be found, providing a broader perspective on GMS's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.