Ply Gems Rides Real Estate Rebound to IPO

The building products company could pull off a hot deal

   

According to a report in The Wall Street Journal, it looks like Ply Gem Holdings is soon going to file for an IPO. The company is a top manufacturer of exterior building products like siding, fencing, windows and doors. Some of its brands include Ply Gem Windows, Great Lakes Windows and Mastic by Ply Gem.

This isn’t the company’s first rodeo, though. Backed by private equity sponsor CI Capital Partners, Ply Gem tried to pull off an IPO back in 2010 when there were glimmers of a real estate market rebound. Of course, those glimmers proved to be illusory and the company had to withdraw its offering.

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This time around, things look much different. Heck, today, the Commerce Department announced that housings starts reached an annual rate of 917,000 — the highest since 2008. As a point of reference, they were below 600,000 in 2011.

On top of that, according to a recent study from Joint Center for Housing Studies of Harvard University, the net new household formations for the next decade are expected to come to about 11.8 million. It’s a good bet that a good chunk of these families will buy homes. Besides, low interest rates should be a big help.

Such growth in the housing market is obviously going to benefit Ply Gem because there will be higher demand for its products — windows, doors, fencing, siding and so on. Homebuilders will also especially want the kinds of high-quality, branded products that the company offers, which help to add value.

Ply Gem should benefit from the general improvement in the overall economy and consumer confidence as well. Keep in mind that demand for home improvement and remodeling — another big part of its business — has been depressed since the financial crisis. But over the past year, this market has been perking up. Evidence of this is seen with the surge in Home Depot (NYSE:HD), whose stock is up 41% over the past 12 months.

Of course, there is much room for growth in the housing market. To keep things in perspective, housing starts before 2006 never fell below 1 million — for the prior 50 years.So in a way, a big part of the growth in housing will be just to get back to normal levels.

Still, even during the downturn, Ply Gem still found ways to move things forward. To this end, Ply Gem made six acquisitions — taking advantage of the depressed valuations in the sector.  This helped to boost its U.S. vinyl siding business, whose market share ramped from 32.3% to 36% during the past two year. The company also engaged in a tough restructuring to reduce its cost restructure.

Those moves have sure paid off. The financials have also shown lots of improvement.  From 2009 to 2012, total revenues have gone from $951 million to $1.12 billion. The company is also cash flow positive. Last year, operating income was $70 million, up from $44.9 million in 2011.

As for an IPO, investors should be receptive.  Of course, the market has already seen several strong performers in the sector:

Company Ticker Return
Trulia TRLA 85.8%
Boise Cascade BCC 53.3%
Realogy Holdings RLGY 77.7%
TRI Pointe Homes TPH 15.5%
Nationstar Mortgage Holdings NSM 166.7%

With all this in mind, the IPO sure looks promising. So far, Ply Gem has not filed the necessary IPO papers with the SEC. But in light of the bull moves in the real estate sector, it’s probably a good bet that management has made this a big priority.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of “How to Create the Next Facebook” and “High-Profit IPO Strategies: Finding Breakout IPOs for Investors and Traders.”Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/ipo-playbook/ply-gems-rides-real-estate-rebound-to-ipo/.

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