Can you guess which company this is?
| 2014 | 2024 | Compound annual growth rate |
Revenue | $518 million | $2.9 billion | 19% |
Net income | $13.9 million | $257 million | 34% |
Free cash flow | $13.4 million | $251 million | 34% |
Share price | $17.82 | $175.25 | 26% |
Source: Liontrust, Bloomberg, as at 19.09.25. Past performance does not predict future returns
Pretty outstanding returns, right? Yet at the beginning of 2025, when we first bought the shares, they were trading at a price/earnings ratio of just 16. That was cheaper than the S&P 500 on 25x or the MSCI All Country World Index on 20x!
Why might that be? High debt? No… this company has 1.3x net debt to EBITDA (earnings before interest, tax, depreciation and amortisation); very manageable and below its long-term average of around 2x; Low returns on capital? No… it made a five year and ten-year average return on invested capital of 14% and 16% respectively (source: Liontrust, Bloomberg, September 2025) – high returns which have improved over time. Low market share? No… this business has consistently taken share over several years.
The company is called Installed Building Products. It installs insulation, largely for US residential properties. It started life as Edwards Insulation in 1977, based in Columbus, Ohio. The founder’s son Jeff Edwards began working in the business in the 1990s and recognised a huge scaling opportunity. He started buying similar family-owned insulation installer firms around the country, gained procurement discounts from suppliers as the group grew larger, and then used the excess profitability to reinvest into further acquisitions and drive more scale efficiencies (e.g., on insurance, accounting and payroll costs).
Starting with just one branch some 50 years ago, IBP now represents around 30% of the total US insulation installation industry. The business now has considerable scale and distribution advantages – IBP can procure and install insulation for less than the cost of an individual general contractor just buying the insulation material!
The company is now expanding into adjacent categories such as doors, gutters and fireproofing. IBP can offer its large customer base these extra products alongside insulation, effectively utilising its existing distribution heft and is therefore winning share in these complementary areas from a low starting point.
[1]Source: Liontrust, Bloomberg, as at September 2025.
Source: IBP Q2 2025 Investor Presentation.
But going back to the valuation – why were we able to buy such a high-quality compounder at such a cheap level? Well IBP’s core end-market is US residential housing, which has had a tough time of late. US residential construction spending, which is typically cyclical, has been notably weak over the past three years. This is largely due to higher interest rates, driving US mortgage rates above 6% – levels not seen since before the global financial crisis (GFC) in 2009. As a result, new home affordability is stretched for many Americans and private housing demand has slowed.
US residential construction spending: year-on-year growth (seasonally adjusted annual rate)
Source: US Census Bureau, Freddie Mac, Federal Reserve Bank of St. Louis. As of 31.07.25.
However, we remain optimistic for an eventual recovery and future growth. The housing market post-GFC was a shadow of its former self, as expected. The number of new homes built per year remained below early 2000s levels for a decade – but not just because of previous overbuilding. The rates of people aged 25-35 in the USA living with their parents went from 10% in 2000, to 15% in 2010, and to 17% in 2022, according to the US Census Bureau. This was driven by lower wage growth compared to house price appreciation and lower accumulated savings for a deposit – painful impacts of the GFC. That has caused pent-up demand for new homes as the millennial generation eventually ‘move out’. We can add to this US population growth driven by immigration over the past decade, as well as large numbers of Americans migrating domestically (particularly from high tax to low tax states).
The result – as Moody’s Analytics calculated – is a hypothetical housing deficit of more than 1.5 million homes, which could take anywhere from 4 years (JP Morgan estimate ) to 10 years (CBRE estimate ) to fill, depending on the rate of acceleration of new housebuilding.
Source: US Census Bureau, Moody’s Analytics, as at January 2024
Since we invested in IBP for the first time in January 2025, the company has achieved market share gains and healthy profitability above market expectations. Lower interest rates are a catalyst for new mortgage applications and new household construction growth to return – and we have just seen a 0.25% rate cut from the US Federal Reserve in September 2025. This is a small step but in the right direction for potential homebuyers. IBP’s share price has certainly responded well this year, up 50% year-to-date (in USD, as of 19 September 2025).
We visited the company at its headquarters in Columbus, Ohio in August 2025 to learn more about the cultural aspects of integrating new acquisitions, as well as competition with its arch-nemesis TopBuild (both companies share c.70% of the US insulation installation market but rarely compete head-on as they operate in different regions). We were delighted to hear about their excitement to continue growing share across new verticals, protecting the balance sheet with low leverage through cycles, and returning capital to shareholders with thoughtful buybacks at low prices.
We see IBP as a hidden gem that ticks the boxes for long term success – a healthy cash generative business with a strong distribution moat, led by a visionary owner-operator (Jeff Edwards still owns 15% of IBP), with myriad opportunities to redeploy capital and drive long term compounding.
Here I am checking out some insulation at IBP HQ:
[2]One Good Year Does Not Solve America’s Housing Shortage - Moody's CRE
[3] When will the crisis in U.S. housing affordability end—and how? | J.P. Morgan Private Bank U.S.
[4] Digging Out of the U.S. Housing Affordability Crisis | CBRE Investment Management
KEY RISKS
Past performance does not predict future returns. You may get back less than you originally invested.
We recommend this fund is held long term (minimum period of 5 years). We recommend that you hold this fund as part of a diversified portfolio of investments.
The Funds managed by the Economic Advantage team:
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Alex Wedge
Alex Wedge joined the Economic Advantage team in March 2020 and became a co-manager at the start of 2021. Alex moved from Singer Capital Markets, one of the largest dedicated small cap brokers in London, where he had spent over seven years, latterly as a senior member of the equity sales team.
Bobby Powar
Bobby Powar joined the Economic Advantage team as a fund manager in 2024, and in January 2025 became co-manager of the Liontrust Global Smaller Companies Fund. Bobby moved from Artemis Investment Management, where he was a Global Equity Analyst.
