I Just Bought $50,000 of this NEW Stock

Over the past week, I have added a brand new stock to my portfolio. And as I have continued to research it, I have continued to get more and more bullish on it. So, in today's video, I want to share my full investment thesis, my research on the business so far, and why I think that this stock is offering a tremendous amount of value in the stock market today. So, let's just dive right into the video. And this company is Construction Partners with the ticker symbol road. Now, this is a company that I've mentioned briefly on my channel before, but I have not dedicated a video to going through my investment thesis. So, that's what this video is going to be. Construction Partners has also been on my watch list for a very long time, but I always thought that the stock was looking expensive, so I never bought it. However, the stock is now in about a 30% correction over just the past month or so, and I have used this correction as an opportunity to finally buy into the stock because now I think that it is truly undervalued, and it is my moment to finally get some shares. So, let's start off by discussing what Construction Partners actually does. This screenshot from their website says that they are a road maintenance and construction company with operations across eight states now. And the thesis for this business is incredibly simple. As long as roadways need to be maintained and built across the southern United States, Construction Partners will have business. They will continue to grow and they will continue to produce cash flows. Now, the other part of this investment thesis is that Construction Partners is a serial acquirer of other road maintenance and construction companies. And this is one of the main ways that the business actually grows and continues to expand its footprint, its market share, and even expand into new states. I like to think of construction partners as kind of the constellation software of the roadway industry and that's really what the company does. However, the business does still have pretty strong organic growth as we're going to get into, but they have been growing organically by about 8% annually since their IPO. So, this business is both an organic and acquisition growth story. And we're going to get into how they grow organically and what their acquisition criteria is a little bit later on in this video. But first, I want to show you this slide from their most recent investor presentation, which really lays out the simple investment thesis. So, first off, they like to acquire and partner with experienced operators who know how to build a great company. Really, what construction partners is looking for is similar type businesses with great management teams that they can acquire and expand the business that way. The business itself though offers infrastructure services that meet an essential and growing societal need. This is expanding the existing road infrastructure across the United States and also maintaining the roadways. And then finally they say they focus on a highly fragmented industry with a long runway of growth opportunities. The industry that construction partners operates in is highly fragmented. There are thousands of companies just in their existing states and they are the main consolidator of this industry. There is a massive TAM and runway left for this business to continue growing as we are going to get into a little bit here. But first, let's discuss how this company grows organically so well. This screenshot comes from their most recent analyst investor day and it shows the characteristics of their market. So on this slide, it says strong and recurring demand to maintain infrastructure. Large and addressable market with 94% of roads made with ashvault. Roadways are in poor condition across the United States with an average road grading of D+. And the roadway system continues to deteriorate and requires regular maintenance. So every 10 to 15 years, every single road across the United States needs to be repaired or replaced. And this slide is really showing us that this industry has recurring revenues. Again, since roads need to be replaced or repaired every 10 to 15 years. So this is a recurring revenue type business. It just has very long cycle times. But as I said earlier, revenue will continue to come in as long as people are using the roadways in the United States. But as I said earlier, the investment thesis for this business is very simple. As long as people in the United States are continuing to drive on roads and goods are moving across the roadways, then construction partners will have business and most likely continue to grow. What's also kind of funny is the CEO has said that he has now repaired and replaced the same roadways three times because he has been in this industry for about 40 years now. So he has seen the same roadway replaced on multiple occasions and that is the recurring type nature of this business model. Moving on to the next slide. This one shows us more about how the company grows organically and it says growing addressable market from CPI's founding in 2001 to 2023. US lane miles increased by 8%. Expanding the addressable market of roadways that require regular maintenance. US vehicle miles traveled increased by 16% accelerating roadway deterioration. And then lastly, the average weight of US manufactured vehicles has increased by 13% resulting in faster wearing of roads. So to put this slide simply, roads total addressable market is growing because there are more roads, people are driving more, vehicles are heavier, and ultimately this means that there is more maintenance that needs to happen, which ultimately means that maintenance is happening on a more regular basis. These tailwinds and recurring revenue have allowed construction partners to grow organically by 8.1% annually on average since their IPO. And they're also projecting 7 to 8% annual organic growth out to 2030. So again, this business grows by about 8% annually, which I think is pretty strong organic growth. So now let's move on and talk about acquisitions. And Construction Partners has done 35 acquisitions and entered four new states just since 2020. Since their founding though, they have acquired about 90 different companies. They also say that they acquire companies that don't have succession plans because a lot of the companies within their industries are familyowned and operated or small mom and pops that again do not have succession plans. And this next slide shows us just how fragmented their market is. So within their existing states that they currently operate in, they have identified 325 different companies to acquire. And when we start to talk about vertical integration like owning the actual ashvalt plants or owning the quaries that are used to put into ashvalt then their acquisition opportunities goes up to a thousand different companies. So the industry that construction partners operates in is incredibly fragmented which means that the total addressable market for an acquisition type strategy is massive and I believe that the runway here is decades long. This next slide shows us the company's footprint as it stands today. And they are specifically focused on the southeast of the United States. And they are in eight different states now. And as I said, I do believe that there is still a long runway for growth just in the United States because they have over 40 more states to continue expanding into. And over the longer term, I do not see any reason why they could not continue expanding and implementing this exact same business strategy across the entire United States and even into Canada or Europe. Now, while we're on the topic of acquisitions, I also want to show you what the CEO said in one of their most recent investor conferences. So, here he said, "In the markets we're in, we want to either be the largest or second largest player in that market." Usually in the Ashvault business, depending upon the size of the market, there's either going to be two players. You're never going to be by yourself because the Justice Department is not going to let you have a monopoly. Having two players in a smaller market or three players in a mid-size market or like where I'm from, we had four players. So, they're not always the same size players, but that's usually the competitive dynamic. Sometimes it makes sense instead of going into a new market if we can buy out one of our competitors in the current market we're in and capture their market share and hopefully raise the margin profile in that given market. That's a big part of our acquisition strategy as well. So what the CEO is saying here is that construction partners is usually the number one or number two player within their markets. They will also sometimes buy out competitors to increase their market share and margins. But the overall business of road maintenance is very local and usually has duopolies between the two largest players of which construction partners again usually is. So when I'm thinking about the moat and competitive advantage of construction partners, it's really that the business has local duopolies across the markets that they operate in. Moving on, I want to show you the previous guidance that construction partners put out in 2023. And this guidance was a 5-year target out to 2027. So here we can see that they initially guided for 2.7 to3.2 billion for 2027 and then in 2025 they hit $2.81 billion in revenue. So they met their 2027 goal by 2025. Then their adjusted IBITA margin outlook was 13 to 14% for 2027 and by 2025 they got their margin to 15%. Significantly beating their 2027 target. Then their adjusted IBITA guidance was for 351 to $448 million of IBITA and by 2025 they hit $423 million which was on the higher end of their 2027 guidance. So to put it simply across the board construction partners hit their 2027 guidance 2 years early by 2025. And this company has a strong history of sandbagging their guidance and then smashing it by a very wide margin. So now let's take a look at their updated and existing guidance which is now for 2030. And by 2030 they are projecting to hit $6 billion in revenue which is a 15% compounded annual growth rate from their outlook for 2026. And in 2026 they are projecting to grow the business's revenue by 23%. They're also expecting their IBATA margin to hit 17% by 2030 from the 15.36% margin that they are projecting for 2026. And you can also see that this company has been continually expanding its margins over time and that is projected to continue happening. Now since the business is projecting to grow its profit margins over the next four years, it means that it is projecting to grow its IBITA by an 18% compounded annual growth rate out to 2030 and to reach $1.03 billion of IBITA by 2030. This means that the company is projecting to about double its IBIDA from its fiscal year 2026 guidance to 2030. So just over the next four years the business is projected to double. Now what's interesting about all of this is that in the analyst day conference call from 2025 management said that the 17% EBA margin is guidance but they think that they can do better. So margins may even be higher than that 17% by 2030 which would also further increase the growth rate to the company's profits. And personally I think that they could achieve well over 20% IBIDA growth out to 2030. This next screenshot also comes from their analyst day conference call transcript. And here the CEO said, "Let's now talk about road 2030, the numbers. Moving forward through the other four years, we're modeling in this model 15% growth, which by 2030 would make construction partners over $6 billion in revenue. Continuing to do exactly what we do, this growth rate those next four years, like always, is going to be a combination of organic growth, which you'll hear more about today. It does not need or include in this model another transformative acquisition such as Lonear. There are numerous other transformative acquisitions out there that might happen, but we're not modeling that in because we don't know when those would happen. So, what the management is saying here is that their 2030 guidance is also just if road continues to do exactly what they have done over the longer term and does not have another transformational large acquisition like they have done historically in the past. And whenever Construction Partners has done a large transformational acquisition, they see significant levels of growth. In fact, last year they grew over 50% because they had one of those large transformational acquisitions. And again, out to 2030, they are not factoring in another larger acquisition into their guidance. But they do believe that there are more of these types of acquisitions out there. And personally, I think that they could close on at least another one by 2030. And if they do, then they could see significantly more growth than the 15% annually that they are projecting. Now, another passage from their last analyst day that I think is important to highlight is this one right here. So, the CEO said, "We're going to continue to stay focused on the Sunb Belt. Don't expect us to do anything else. We can double the size of the business, not even leaving the states that we're in." That is how much opportunity there is for us. So what the CEO is saying here is that he believes they can achieve their 2030 targets and double the size of the business without even leaving the existing states that they're already in. That is how large the long-term opportunity for construction partners is. This is a huge and fragmented market and I think that road could continue to grow strong for another 10 plus years simply by continuing to consolidate it, expand their market share in their existing states and eventually continue expanding across the rest of the United States. So now let's get in to the math segment of this video and show you why I think that the stock is actually looking cheap today. This next screenshot comes from Construction Partners most recent financial report and they actually increased their guidance for 2026 to revenue of 3.48 to 3.56 billion. So let's just say that the company is going to produce about $3.5 billion in revenue for this fiscal year. Then they also increased their IBATA guidance to about 540 million. So that's their guidance for this year. $3.5 billion in revenue and about $540 million of IBITA. This next screenshot once again comes from their 2025 analyst investor day where they were asked about growth versus maintenance capex. And here they said that maintenance capex is around 3 to3.25% of revenue. This means that maintenance capex should be roughly $105 million this year based on their $3.5 billion of revenue guidance. Road also shared that the company converts about 80% of its IBITA into operating cash flow. So if they meet their IBATA target of $540 million this year, then that would equate to $432 million of operating cash flow for 2026. Then if we subtract the maintenance capex of 105 million, then that's about $327 million of free cash flow before growth expenses. And the reason that I want to find free cash flow before growth expenses is because this is a company that is constantly investing into growth. They are expanding the business. They are acquiring companies. So the net income and free cash flow is going to look low because they are constantly investing kind of like what Amazon does. So what I want to do is find the actual free cash flow potential of the business before all of those growth expenses. And in my opinion it's around $327 million for 2026. Now let's head back over to Stock Unlock quickly. And here we can see that Construction Partners has a market cap of $5.49 billion today. So, if we take out our calculator and go 5940 divided by $327 million of free cash flow before growth investments for this year, then that means the company is trading for about 16.8 times 2026's free cash flow. I think that this is a very attractive multiple for a company that is projected to continue growing its revenue by 15% annually over the next 5 years and its underlying profits by about 18% annually over the next 5 years as well. I also believe that the guidance that they put out is sandbagged and I would not be surprised at all if they continue to grow well over 20% out to 2030. So now let me show you my quick DCFs for construction partners. And in this first one I am saying that they will grow Ibita by 23% annually over the next 5 years which I do believe is realistic because the company has a history of sandbagging their guidance and then beating it tremendously. The management also said that they believe they can get their IBITA margin above 17% by 2030 and their current guidance does not factor in another transformational acquisition which I believe will happen. So I think that they are sandbagging their existing guidance and ultimately I do believe that they will grow by well over 20% annually over the next 5 years. Now if we take a look at construction partners' historical price to IBITA, we can see that their median since they IPOed is about 15.17. I also believe that the stock was initially undervalued when it first IPOed and since about 2022, the lowest price to ibeta that the stock has traded for has been about 11.5. And you can clearly see that the stock was trading in a pretty consistent range of about 18 times IBITA to about 13 times IBITA with again a long-term median of about 15. So in my DCF, I put in a 15 price to IBITA, which is simply the company's long-term median. You can also see that right now the stock is trading for about 12.4 four times trailing 12 months IBIDA which is on the lower end of where this metric has historically traded for. So even on just a trailing 12 months IBIDA basis, it does look like the stock is trading for a pretty low multiple relative to how it has historically traded. And with this DCF, we get a 26.1% compounded annual growth rate over the next 5 years, a fair value of 193 bucks, and a future stock price of $310 by 2030. Now, I would say that this is arguably a more optimistic DCF because it is factoring in the company beating their guidance. So, if we put in 19% annual IBA growth, which is the company's current guidance, and also lower the price to IBA down to 13, then we still get an $18.6 compounded annual growth rate, a 142 fair value, and a future stock price of 228 bucks, which means that the stock would more than double by 2030. So even with numbers that I think are pretty realistic in the DCF, we still get a very strong compounded annual growth rate to the share price over the next 5 years and this is ultimately why I decided to take a position in construction partners because I think the stock is looking quite undervalued now on a price to free cash flow basis on a price to evita basis and relative to the company's own guidance. So now let's summarize the key points that we discussed in this video and my final thoughts on construction partners. I think that road is looking cheap based on a price to IBATA basis versus the company's historical averages. It's also selling for about 16.8 times free cash flow before growth expenses. Now, which I think is cheap for a company of this quality also with such a high growth outlook. It's also guiding for about 19% Ibata growth out to 2030 based on trailing 12 months numbers. I think this guidance is being sandbagged as they have historically done and ultimately I think it will be beat. I also believe that road is such a simple, proven, repeatable business model and all they need to do is keep doing what they've done. And if they do, then I believe that it could produce over 20% annual returns from its current share price. I think that construction partners is a Peter Lynch type of business and investment where it's boring, it's essential, and it's growing very strong. Again, all road needs to do is continue doing what they've been doing long-term. I also believe that they will expand into more states across the US and eventually explore entering Canada and even Europe. Wherever there are roadways, construction partners will be able to repeat and grow its strategy. So, those are all of the reasons why I finally decided to take on a position in construction partners. And as I said, as I continued to learn more about this business, I got more and more bullish on it. So, over the past week, I have built up a pretty sizable position in this stock, and I'm happy that I finally got the opportunity to do so. But with all that being said, that is going to wrap up today's video. And if you enjoyed the video, then as always, please remember to leave like on it. And if you would like to get even more content from me and also get access to all of my buys and sells as I make them, and also access to content usually before the YouTube channel even sees it. For example, my Patreon members got notified when I was building out my road position, and I've already received a full video on this business. So, if you would like access to a lot more content from me, all of my buys and sells, and also be able to see my full portfolio, then consider joining my Patreon. It's only $15 per month, and my members have been absolutely loving it, and I think that you will, too. And with that being said, as always, thank you so much for tuning in. I truly do appreciate it and I hope to see you again in my next