ROAD's price decline is unjustified by fundamentals; record backlog and growth support a bull thesis with high long-term return potential.

the first stock is the index symbol ROAD, which is Construction Partners. This is the first stock I added to my portfolio because the stock fell by about 28% after the announcement of what I considered very good results for the third quarter.

They announced their third-quarter results on August 7, and if you recall, the stock rose 20% on the day of the announcement because they achieved record revenues and virtually every metric across sectors, even their profitability, grew by about 30 % year-over-year.

They also announced a record order book . So, their cumulative revenue record for next year also reaches a record high. Once again, the stock rose 20% after that earnings report, but it is now down about 30% in just the last two months, and is nearly 40% below its all- time high. I don't think this is justified at all.

Construction Partners now represents about 5.4 % of my total investment portfolio, and if the stock stays within this range, I will continue to increase my stake in it as my income and liquidity continue, because I truly believe that this stock does not deserve to be at this low level.

what this first snapshot shows us is that Construction Partners raised its forecasts every quarter during the past year for both revenue and earnings before interest, taxes, depreciation and amortization ( EBITDA).

Current projections now stand at $3.66 billion in revenue for the current fiscal year and $565 million in earnings before interest, taxes, depreciation and amortization. In the third quarter, the last quarter the company reported in August, the CEO stated that demand for public infrastructure and commercial construction projects remained strong in our markets, resulting in a record backlog of orders worth $3.36 billion.

We expect strong organic growth again in fiscal year 2027, and we already have nearly $140 million of earned revenue that will carry over to next year.

In addition, Construction Partners has completed three acquisitions since its last earnings report , and in my estimation, these acquisitions will grow revenues by about 5 to 7% over the next year already.

So, they continue to grow the business and acquire additional companies on top of what appears to be strong organic growth for their next fiscal year. When Construction Partners announces its earnings in November, they should provide us with their forecast for the full year 2027 and what they expect.

Therefore, that will also be an interesting earnings report.

The first reason is increased inflation and oil prices. Construction Partners, for those who don't know, is a company that maintains, repairs and builds roads throughout the United States.

This is what the company does. It provides vital infrastructure and maintenance services across its main markets.

But this also means that the market believes that when inflation is high and oil prices are rising, this company's costs rise significantly, which also means that its profit margins should fall, and therefore its profits should ultimately fall .

This is one of the reasons why the market sold the stock heavily due to rising oil prices and inflation data.

However, that is what the CEO said in the latest earnings report during the conference call. " We are seeing natural adjustments in labor, concrete, and pipe costs, and we have a model for passing on costs.

There is really nothing overwhelmingly impacting our business.

Management used to enter into fixed-price contracts prior to 2022. As we all know, inflation in 2022 was very high, reaching 9.5%. This significantly impacted Construction Partners' profit margins.

Profits actually declined that year. Margins fell considerably in 2022, and since then they have been recovering and are now at an all-time high with EBITDA margins forecast at 5.4% for this year.

In 2022, Construction Partners began implementing cost adjustments in its contracts, which allowed it to pass on increased costs and maintain and expand its margins. We have They learned their lessons from the inflationary pressures of 2022 , made changes, and are now a much more resilient company.

Now, the next major risk I've seen the pessimists talking about is interest rates because Construction Partners has a significant amount of debt on its balance sheet today.

But, in terms of rising interest rates, a 1% increase would mean Rood Company would see a change of $17.6 million in its interest payments over the course of a year. The Federal Reserve has raised interest rates by 0.25% so far, with another 0.25% increase expected by the end of the year.

Rood Company generates about $565 million in annual EBITDA and about $324 million in owner free cash flow annually. So, they have enough earnings to absorb a small increase in interest rates.

Simply put, I don't think a rise in interest rates justifies a 30% drop in the stock price, and it wouldn't really be a major drag on the business overall. Now, let's move on to Rood Company's outlook for 2030.

They are projecting revenue growth of 15% annually to generate over $6 billion in revenue by fiscal year 2030.

EBITDA is also projected to grow faster than revenue by expanding margins, at 18 % annually through 2030, reaching over $1 billion that year. Rhode shows us that approximately 80% of its EBITDA is converted into operating cash flow.

They also state that 3% of revenue is spent on capital expenditures for maintenance. This means Rhode will generate $324 million in free cash flow for owners in 2026, growing to $644 million in 2030.

These projections do not include any transformational acquisitions, which are larger acquisitions that substantially grow Rhode's business . However, they are likely to make at least one major transformational acquisition by 2030.

By 2030, they would be boosting almost every metric they've provided guidance on by that year . So, in principle, if they can achieve at least one transformative acquisition by 2030, I think their guidance will be overridden again .

Here we can see that it has now dropped to around 10.33 at Friday's market close . The last time Rhode was trading at a similar price to EBITDA was in September 2020.

Now, if we look at Rhode's stock price in September 2020, it was $17. The stock has gone up 388% since then. Interestingly, Construction Partners' core business hasn't been growing at all.

In 2020, due to the COVID outbreak and the global lockdown, they were facing significant challenges in their overall business.

Today, they're actually experiencing record backlogs . They're still growing at around 30% annually and are expecting another strong year in fiscal 2027.

So , it doesn't really make sense when I think about it. I believe the market is being overly pessimistic about this company right now . Construction Partners is trading at a market capitalization of $4.94 billion today.

As I mentioned earlier, the company is expected to generate approximately $324 million in earnings to owners this year. This means they're trading at roughly 15.2 times the owners' free cash flow for the year, which I consider...

A very fair multiple for a company that provides critical infrastructure services to the US and continues to grow at over 20% annually .

Over the next five years, I assume Road will grow EBITDA at 19% annually, as directed, leading to roughly $1 billion in EBITDA by fiscal year 2030.

I also used an exit price-to-EBITDA multiple of 15, and if you look at Road's long- term average, it's exactly 15. So, this discounted cash flow model suggests that Road will eventually return to its historical average price-to-earnings multiple.

using these inputs, I get a 27% compound annual growth rate (CAGR) for Road's stock price and a fair value of $178. $1.00, with a futures price of $287, representing a total return of 231% over the next five years.

Simply put, if Construction Partners manages to meet its five-year guidance, grow its earnings 19% annually, and simply return to its long-term average price-to-earnings ratio, this stock could be a massive gain over the next five years.

What I also want to emphasize is that if we lower the EBITDA growth rate to 13% annually, meaning they would significantly miss their guidance, and set the exit multiple at 12, which is considerably lower than their historical averages, we would still get a compound annual growth rate of 15% for the stock price.

This is a very strong return based on what I consider very conservative metrics, given that the company has no history of missing its guidance. In fact, they have a reputation for lowering expectations and achieving their targets about two years ahead of schedule.

So, I'm betting that this company will not only miss its guidance but actually exceed it. And if They did that, so I think the stock is very cheap today and looks like one of the best buying opportunities in the market, at least from my perspective.

That's why, for me, I've continued to buy a lot of Construction Partners shares and increase my holdings as the stock price has fallen, because as the price falls, the risk actually decreases and the future returns increase.

So, that's one of the reasons I'm continuing to buy the stock. I think the bearish views on the stock don't seem to make sense right now. I think they're overrated , and ultimately, I don't see the stock as worth a 30% drop after what I considered a very strong earnings report.