GMS distributes wallboard, ceilings, insulation, and complementary construction products in the United States and Canada. The company offers ceiling solutions used in offices, hotels, hospitals, schools, and other commercial and institutional buildings.

Based in Tucker, Georgia, GMS also provides steel framing products such as steel tracks and studs used to frame interior walls. Serving homebuilders and professional contractors, the company offers ancillary products comprising tools, fasteners, lumber, and safety gadgets. GMS operates through tool sales, rental, and service centers, as well as a network of distribution centers.

The building materials distributor faces several headwinds. Revenue trends remain negative as the company struggles to adjust to shrinking demand. As we’ll see, analysts have been slashing earnings estimates as the growth outlook dwindles.  

The Zacks Rundown

A Zacks Rank #5 (Strong Sell) stock, GMS GMS is a component of the Zacks Building Products - Retail industry group, which currently ranks in the bottom 6% out of approximately 250 Zacks Ranked Industries. As such, we expect this industry group as a whole to underperform the market over the next 3 to 6 months, just as it has over the past year:

Image Source: Zacks Investment Research

Stocks in the bottom tiers of industries can often be intriguing short candidates. While individual stocks have the ability to outperform even when they’re part of a lagging industry, the inclusion in a weaker group serves as a headwind for any potential rallies and the journey forward is that much more difficult.

Along with many other building product stocks, GMS shares have been hit hard this year. The stock is hitting a series of lower lows and represents a compelling short opportunity as we head further into 2025.

Recent Earnings Misses & Deteriorating Outlook

GMS has fallen short of earnings estimates in each of the past five quarters. Just last month, the company reported fourth-quarter earnings of 92 cents per share, missing the Zacks Consensus Estimate by -33.8%.

The construction products supplier has posted an average earnings miss of -14.6% over the last four quarters. Consistently falling short of earnings estimates is a recipe for underperformance, and GMS is no exception.

The company has been on the receiving end of negative earnings estimate revisions as of late. Looking at the current quarter, analysts have slashed estimates by a whopping -38.5% in the past 60 days. The Zacks Consensus EPS Estimate is now $1.15 per share, reflecting negative growth of -40.5% relative to the year-ago period. Sales are projected to fall -8.2% year-over-year to $1.3 billion.

Image Source: Zacks Investment Research

Falling earnings estimates are a huge red flag and need to be respected. Negative growth year-over-year is the type of trend that bears like to see.

Technical Outlook

As illustrated below, GMS stock is in a sustained downtrend. Notice how the stock has made a series of lower lows. Also note that shares are trading below downward-sloping 50-day (blue line) and 200-day (red line) moving averages – another good sign for the bears.

Image Source: StockCharts

GMS stock has experienced what is known as a “death cross,” whereby the stock’s 50-day moving average crosses below its 200-day moving average. Shares would have to make an outsized move to the upside and show increasing earnings estimate revisions to warrant taking any long positions. The stock has fallen more than 15% this year alone.

Final Thoughts

A deteriorating fundamental and technical backdrop show that this stock is not set to make its way to new highs anytime soon. The fact that GMS is included in one of the worst-performing industry groups provides yet another headwind to a long list of concerns. A history of earnings misses and falling future earnings estimates will likely serve as a ceiling to any potential rallies, nurturing the stock’s downtrend.

GMS is likely to suffer from uncertainties surrounding the U.S. construction market, which are expected to continue given affordability concerns and lingering inflationary pressures.

Potential investors may want to give this stock the cold shoulder, or perhaps include it as part of a short or hedge strategy. Bulls will want to steer clear of GMS until the situation shows major signs of improvement.

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This article originally published on Zacks Investment Research (zacks.com).

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