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Hawk’s Nest

GMS Call Activity Running 10X Average

by | Nov 11, 2020

GMS (GMS) relative strength on 11/10 and trading over 4000 April $40 OTM calls to open up to $1.50, around 10X total open interest in the name. GMS is breaking out of a multi-month range and not far from two-year highs up around $33. GMS traded as high as $40 back in 2018 and yesterday’s action broke a long downtrend. The $1.14B company trades 8.22X earnings, 0.36X sales, and 8.15X cash with accelerating EPS growth. GMS is a building products company which focuses on wallboards, studs, insulation, drywall, ceiling systems, and other complimentary products. Their primary business is wallboard (41% of sales). They do mostly commercial work (55% of sales) through construction on hospitals, office space, hotels and schools. GMS sees themselves as a conduit between manufacturers like Georgia Pacific and USG and the thousands of disparate contractors at the job site, mostly independent operators with long-term ties to distributors. They have an advantage over big box retailers like Home Depot (HD) and Lowe’s (LOW) in that neither can focus on the specialized equipment side of their business, which could make them an attractive target themselves. GMS sees multiple avenues to grow in 2021 including expanding their footprint and M&A. GMS has been challenged in 2020 as a lot of large commercial projects slowed but could return with a more ‘normal’ environment in 2021 as their CEO noted in August. “I think longer term, you will start to see some remodel come back and I think that as people really come back to work and occupy office space will start to see some pickup in that.” GMS sees little analyst coverage but does have 5 hold ratings and 3 buy. RJF with a $30 PT citing how pricing seems to have stabilized and residential demand is improving. Short interest is 2.5%.