I Just Bought $17,000 More of This Stock

One of the stocks that I had been buying aggressively in the market over the past month or so reported its earnings this morning and the stock is up over 20% on the day at the time of recording this video. This company is construction partners with the ticker symbol road. And in today's video, I want to go through the earnings report, show you all of the highlights and what I think investors need to know. And I will also be explaining why I think the stock is looking cheap and also why I purchased even more shares in the market today. With that being said, this video is not going to be my full investment thesis video. And if you want to see that video where I explain the business, what it does, and why I invested in it, then you can check out the link that I will put in the description and in the comment section, which explains my investment thesis with Construction Partners. So, with that out of the way, let's now hop in to Construction Partners Q3 2026 earnings report and the highlights that I want to share with you. All right, so let's start from the top with the highlights from their press release. And here they show that revenue was up 28% year-over-year. Net income was up 34%, IBITA is up 24%. The company has a record backlog of $3.36 billion now. And they once again raised their outlook for their fiscal year 2026, which ends next quarter. So right off the bat, this already looks like a pretty dang strong earnings report again with revenue up 28%, earnings up over 30%, and IBITA up 24%. So, this company is continuing to kill it and grow very well. Moving on to the next screenshot here, they show us that Ibeta hit $163 million this quarter. And Ibeta is not my favorite metric for every business, but it is the one that the market tracks most closely for this company. And later on, I'm going to show you how I convert IBATA into their actual free cash flow. And I do still look at the company on an actual free cash flow basis. Then management said, "Earlier this month, we were pleased to expand our Oklahoma footprint through the acquisition of Ellsworth Construction, which further strengthens our present into two of the fastest growing markets in the Sunb Belt. The acquisition also expands our capabilities in the fast growing data center construction market, where Ellsworth has established a strong presence that complements Overland's extensive data center portfolio in North Texas. We remain on track to deliver sustained revenue growth, expanding profitability and continued progress towards achieving our road 2030 objectives. So here we can see that they acquired a new company Ellsworth Construction that expands their footprint in North Texas and also gives them more exposure to the data center buildout in this region which is providing tailwinds for the business. Although they do make it clear that data centers are not a huge portion of their backlog and I believe it's around $200 to $300 million. So about 10% of their book right now. So if the data center or AI trades do slow down in the market, then I think that construction partners could get hit along with it to an extent. But fundamentally, I don't think that this is a huge portion of their backlog or their actual fundamentals. And over the long term, I think that this business is going to continue growing and compounding away. So if it does see any weakness on the AI trade selling off at any point, then personally, I think that it is an opportunity for me to buy more shares. Moving on to the next screenshot. This is their updated guidance and guidance is now $3.66 billion in revenue for this year. Adjusted Ibita is also $565 million in the middle of their range and this is the third time in a row that they have updated their guidance for 2026. Then management says, "Cpi continues to create long-term shareholder value through the disciplined execution of our proven growth strategy, combining strong organic growth and strategic acquisitions that expand our platforms across the Sunb Belt, increase scale, and enhance operating efficiencies. We believe CPI is well positioned to continue growing and compounding value. The board and I remain highly confident in CPI's long-term strategy, competitive position, and our ability to capitalize on the significant opportunities ahead. So, it sounds like management continues to remain bullish on the company, and they believe that the business is going to continue compounding shareholder value over the long term. They also sound like they still are on track to hit their 2030 targets. And personally, I do think that they will actually surpass their 2030 targets because Construction Partners has a history of sandbagging their guidance and then absolutely smashing it. And given the fact that they're already tracking above their 2026 guidance and they've upgraded it a few times throughout the year, that suggests to me that they probably are going to smash through their 2030 targets as well. And I will explain exactly why I think they will do this in this video. But first, I want to show you what Road's 2030 targets actually are. And here we can see that they are expecting over $6 billion in revenue for their fiscal year 2030, which is a 15% compounded annual growth rate to the revenue over the next 5 years. Now, in the screenshot, which comes from their most recent investor presentation, you can see that their initial fiscal year 2026 revenue guidance was $3.45 billion and this has now been upgraded to 3.66 billion. So, they have increased their revenue guidance by about $210 million throughout 2026. and their total revenue growth is now up to 30% on a year-over-year basis relative to last year. So, the company is executing very well and they are projecting to continue growing the business by double digits all the way out to 2030. This next screenshot shows us that they're also projecting to continue expanding their profit margins up to an IBATA margin of 17% by 2030. So, profits should continue to grow faster than revenue as well. And this is exactly what they are showing as well. They are projecting to grow ibitta by an 18% compounded annual growth rate all the way out to 2030 and to reach $1.03 billion in IBITA by their fiscal year 2030. Now once again you can also see that their initial fiscal year 2026 outlook was to have $530 million of IBITA and now this has been upgraded by 35 million to their $565 million target. Now, this next screenshot comes from their most recent investor day. And in the screenshot, the CEO says that he believes the 17% margin is guidance, but they want to beat it. And they actually think that their IBATA margin could come in well above 17% by 2030. And this is what I mean. This is a management team that likes to sandbag their guidance and then come in and actually beat it. And if they achieve higher margins by 2030, then the profits would compound even faster than the 18% that they guided for. This next screenshot is another passage from their most recent investor day. And I'm not going to read the underlined segments. I just want to highlight and summarize what they're actually saying here. But if you want to pause the video and read the screenshot, then you are more than welcome to do so. And I would actually recommend doing that. But in this passage, the management also said that their current 2030 guidance does not include any transformational acquisitions. They do have transformational acquisitions always in discussions and when they close, they materially grow the business, but construction partners doesn't put these into their guidance because they don't know when these large transformational acquisitions will actually close and happen. But over the next four years, I imagine that they will do at least one more large transformational acquisition. And if they do so, then the guidance will for sure be beat and the growth rates will be even higher. So now let's move on to the highlights from the conference call this quarter. And here management said, "We continue to benefit from the ongoing generational transition occurring across our industry and maintain a robust pipeline of highquality acquisition opportunities throughout our existing footprint and in adjacent Sunbelt states. We remain actively engaged in discussions with prospective sellers and encouraged by the opportunities ahead. Organic growth remains an equally important component of our long-term strategy, as evidenced by our strong organic growth both in this quarter and our entire fiscal year 2026. Finally, I'd like to say that we're excited not only for the results of this quarter and expected for this fiscal year, but also for the outlook ahead for fiscal year 2027 that begins on October 1st. So in this passage, the CEO is saying that the acquisition pipeline remains strong and they're seeing a lot of opportunities in their markets to both expand their existing footprint and capture more market share and also expand into new states because as I've shared recently, Construction Partners still is only in about eight states across the southern United States and they still have what would that be 42 more states to expand into. So the runway for this business I think is incredibly long. But what they're also saying is they're not just growing through acquiring more businesses. Construction Partners is growing at about 8 to 10% organically every single year. And since they have been a public company, they have averaged about 8% organic growth every single year. So this is what they're guiding for the future as well. And it's also what they're currently seeing. So this is not just an acquisition growth story, but they also grow quite strong organically as well. And then finally, they're saying that they're not just excited about the remainder of this year, but they're starting to get excited for their next fiscal year 2027, which starts in October. This suggests to me that management is seeing a lot of opportunities to close more acquisitions in 2027, and they're also continuing to see strong organic growth into next year. So next year is most likely going to be another year of 20% plus growth for construction partners which I think is very good especially considering the stock price in my opinion is offering a lot of value today. Moving on to the next screenshot here they said we are raising our fiscal year 2026 guidance to reflect over 30% growth to both topline revenue and bottomline margins. Looking forward to fiscal year 2027 we anticipate strong organic growth again. We already have approximately $140 million of inquisitive revenue carrying over from this year. Another typical CPI year of growth is developing. We will continue to march forward with discipline to deliver long-term strategic value for our shareholders. So once again, management is simply saying that they believe next year is going to be another typical construction partners year and they're probably going to see quite a bit of growth. All right, this is the last screenshot from the conference call that I want to share. And here they said, as of the end of the quarter, our debt to trailing 12 months Ibita ratio declined to 3.17 times. We remain committed to our strategy of reducing the leverage ratio to approximately 2.5 times to support sustained profitable growth. We expect to convert 75 to 85% of IBITA to cash flow from operations this year. And again adjusted IBATA is expected to be in the range of 559 million to 569 million which puts it at 565 million in the middle of the range. So in this passage construction partners is saying that their debt to IBITA ratio is at 3.17x right now. Now this is on the higher end of their historical range. Typically, they do like their debt to EBIDA ratio below two, but they did a large transformational acquisition near the end of 2025, and they did take on more debt to do so. Now, they are planning to pay back this debt and get their debt to IBATA ratio back down to 2.5x and out to 2030. They are projecting for their debt to Ibata ratio to be 1.5 to 2.5x. So, the leverage ratio of the business is on the more elevated end right now. And this is a risk for the business. But personally, I believe that this business is still generating a significant amount of cash flow while also servicing and lowering their debt burden. And they are expected to continue putting more cash flow into paying back their debt for the remainder of this year and going forward. So ultimately, the debt is weighing down the net income and profitability right now. But I think that this is more than fine. The business is still generating a lot of cash and it's not risking the business in any material way. The next key point here is that construction partners converts about 80% of its adjusted IBITA into actual operating cash flow and they are projected to continue converting about 80% of IBITA into operating cash flow all the way out to 2030. This is the company's conversion ratio. Basically 80% of IBITA becomes operating cash flow for the business. Now why this is important is because management has also consistently said that their maintenance capital expenditures equals about 3.2 25% of revenue. And from my time following this business and analyzing it, this has been the maintenance capex. Again, 3.25% of revenue. So, now let's talk about roads valuation. They are expecting $565 million of IBITA for this year. Again, they have an 80% conversion from IBATA to operating cash flow, which equals about $452 million of operating cash flow for this year. Now, as we just saw, they also say that they have about 3.25% 25% of revenue as maintenance capex, which equals about $120 million of maintenance capex for their 2026 revenue guidance. This ultimately means that owner's free cash flow should be around $332 million for their fiscal year this year. This is how much free cash flow the business actually produces before acquisitions and growth investments. And after the 20% spike to Road share price today, it is a $6.8 8 billion company now which means that it is trading for about 20.3 * 2026 owner free cash flow which I think is a very fair multiple for such a highquality business that has so much compounding left ahead of it and is also growing at well over 20% plus on stock unlock we can also see that road's median price to ibeta ratio has been about 16.5 since 2021 so that is how the company has traded relative to its ibita over the past 5 years and based on road's current guidance of $565 million of IBITA for this year, it means that the stock is currently trading for a price to IBITA of 11.9 times based on their 2026 guidance. This puts the stock still well below its long-term median of 16.5. Now, as we also saw earlier, Road is projecting about $1.03 03 billion of IBITA by 2030, which is a 19% compounded annual growth rate to the IBITA over the next 5 years. In my DCF, I also put them trading for 15 times IBIDA, which is slightly below their long-term median. So, I'm basically saying that road will once again trade for its historical median price to IBITa ratio and slightly below it. So basically, if Road can actually achieve their 2030 target and grow IBITA by 19% annually and trade slightly below their long-term median, then the compounded annual growth rate to the share price could still be roughly 19% over the next 5 years. The fair value of the stock would be about 178 and the future stock price would be $287 bucks, which is a total return of 138% over the next 5 years. Now, if Road can actually expand their margins above 17% by 2030, which they believe they can, and do another transformational acquisition over the next four years, then the compounded annual growth rate to IBITA could be even more. And I believe that in reality, they could achieve around 23% annual IBITA growth over the next 5 years. And with this growth plus a 15 price to EBA to multiple then the share price could compound by roughly 23% annually over the next 5 years. The fair value would be $210 per share and the future stock price would be about $340 per share which would be a total return of about $180% all the way out to 2030. And I actually believe that these are more realistic projections. But I also want to show you a conservative DCF. So let's say that they miss their IBATA guidance by hund00 million and grow their IBATA to 900 million by 2030. This would be a 15% compounded annual growth rate to the IBITA over the next 5 years. Then let's also say that because they missed their guidance, their multiple compresses down to 13 times IBITA, which is also well below the company's long-term median of 16.5. And in this DCF, we get about an 11.7% compounded annual growth rate, a fair value of 130 bucks, and a future stock price of $210 per share. And again, this would be them missing their guidance by $100 million, and trading well below their historical averages. And even with this pretty pessimistic DCF, the stock could still produce a market beating return of almost 12% annually. And this is ultimately why I added more shares to my position today because the company is continuing to grow and execute extremely well. And I continue to believe that they are actually going to beat their guidance. And if they do, then I think the stock could produce over 20% annual returns out to 2030. And overall, I do think that this report was a business asusual report for construction partners. And I think that the share price reaction today is just the market correcting itself and realizing that hey this is actually a good business and maybe it shouldn't sell for as much of a discount that it was trading for because at the bottom there construction partners was trading for about 9 times its 2026 IBIDA projections which is well below the historical median for the business and actually was the lowest price to IBIDA that the stock has traded for over the past 5 years because the historical low was about 11.8 8 back in 2022. So, in my opinion, the stock got very very cheap when it was below $100 per share. And that is why I loaded into it. And the reaction today, I think, is just that multiple correcting itself and the market getting bullish and getting more confidence in the business once again. But again, I do still think that the stock is offering value today. And I did add to my position and road has become a larger position in my portfolio at nearly 5% of my overall allocation. And I think that this one is going to continue compounding over the long term. But with that being said, that is going to wrap up today's video. And if you enjoyed the video, then please remember to leave a like on it. And also make sure to subscribe if you want to see more content like this. Hope to see you again in my next