Griffon Plunges 19.5% in Six Months: How to Play the Stock?

Core Viewpoint - Griffon Corporation (GFF) has experienced a significant decline in share price, dropping 19.5% over the past six months, which is worse than the industry and S&P 500 declines of 6.1% and 3.2%, respectively [1] Group 1: Performance Overview - GFF's stock closed at $67.20, significantly below its 52-week high of $86.73 and above its 52-week low of $55.01 [3] - The company's total revenues for the fiscal second quarter were $611.7 million, missing consensus estimates and reflecting a 9% year-over-year decline [5] Group 2: Segment Performance - The Consumer and Professional Products (CPP) segment saw a revenue decline of 12.9% year-over-year in the second quarter of fiscal 2025, primarily due to reduced consumer demand in North America and the UK [4] - The Home and Building Products (HBP) segment also faced challenges, with revenues declining 6% in the fiscal second quarter due to typical seasonal drops in residential volumes [5] Group 3: Debt and Financial Health - GFF's long-term debt increased by 7.9% CAGR over the last five years, reaching $1.53 billion, with current liabilities at $330.8 million, exceeding cash equivalents of $127.8 million [6] - The company's long-term debt/capital ratio stands at 87.68%, significantly higher than the industry average of 54.02% [6] Group 4: Market Trends and Outlook - Despite recent challenges, the U.S. residential construction market is expected to recover, which may benefit the HBP segment [10] - The company anticipates flat revenues for the HBP segment in fiscal 2025, supported by a recovery in the commercial construction market [11] Group 5: Strategic Initiatives - GFF has been active in acquisitions, including the purchase of Pope, which is expected to generate annual revenues of around $25 million and contributed 2% to the CPP segment's revenues in the fiscal second quarter [12] - The company remains committed to shareholder returns, paying $23.4 million in dividends and repurchasing shares worth $72.9 million in the fiscal second quarter [13] Group 6: Financial Metrics - GFF's trailing 12-month return on equity (ROE) is 114.46%, significantly higher than the industry average of 36.57%, indicating efficient use of shareholder funds [14] - The stock's forward 12-month price-to-earnings ratio is 10.41X, below the industry average of 16.28X, suggesting an attractive valuation for investors [15] Group 7: Earnings Estimates - Earnings estimates for fiscal 2025 have increased by 0.5% to $5.71 per share, while estimates for fiscal 2026 remain stable at $6.85 [18] - The Zacks Consensus Estimate for GFF's sales in fiscal 2025 implies a decline of 1.9% year-over-year, while EPS estimates indicate an 11.5% growth [19]