Construction Partners Stock Cracks Under Pressure As Short Seller Warns Of Potential 50% Downside

Construction Partners Inc (ROAD) shares tumbled on Thursday after a short-selling investment management firm, Spruce Point Capital Management, released a new research report titled "An As-Faulty Investment." The report claimed that the company's business is under pressure and faces a potential 35% to 50% downside risk. Here's what investors need to know about the report and its implications for Construction Partners' stock.

Spruce Point Capital Management's report highlights several concerns related to Construction Partners' poor transparency, including frequent changes to market leadership claims and contractor rankings. The short seller also noted that the company rarely breaks down its guidance to show how much growth is organic and instead relies on acquisitions for growth. Additionally, Spruce Point claimed that Construction Partners' contract mix is getting worse, and management has made changes to cash flow reporting that appear beneficial to reported results.



One of the key factors driving the potential decline in Construction Partners' largest customer, the Florida Department of Transportation (FDOT), is the reduction in contract awards. Spruce Point's Freedom of Information Act (FOIA) request with FDOT indicates that Florida revenue is poised to decelerate. The short seller believes that Florida contract awards are set to decline materially, which could significantly impact Construction Partners' business, given the importance of this customer to its operations.

Spruce Point estimated that Construction Partners will experience an EBITDA decline of $10 million to $15 million in 2025 based on a slowing of Florida contract awards. The short seller also noted that Construction Partners is focused on expanding to Texas and Oklahoma to deflect attention away from declines in Florida. However, Spruce Point is skeptical about the financials of the company's recent acquisition of Lone Star Paving, claiming that market models have failed to accurately calculate equity and enterprise values, which has led to an inflated valuation.

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Construction Partners' shares were down 10.6% at $82.86 at the time of publication Thursday, according to Benzinga Pro. The company has not yet responded to Benzinga's request for comment on the Spruce Point report.

Investors should consider the specific financial metrics and indicators highlighted in Spruce Point's report when evaluating the potential 50% downside risk for Construction Partners stock. These include revenue growth failures and weakening backlog, return on capital and free cash flow conversion, contract mix and cash flow reporting, and valuation concerns. By analyzing these factors, investors can better assess the potential impact of the short seller's claims on the company's long-term financial sustainability and stock performance.

In conclusion, Construction Partners Inc (ROAD) shares tumbled following a short seller's report warning of a potential 50% downside risk. Investors should consider the specific financial metrics and indicators highlighted in the report when evaluating the company's long-term financial sustainability and stock performance.