Privately held residential construction companies are growing sales at a rate of 17 percent in the most recent period, making them part of one of the fastest growing industries in the United States, according to financial information company Sageworks. This rate of growth escalated three percentage points from its 2012 rate of nearly 14 percent.
Aside from the revenue strength shown by home builders, they’re also converting revenue into more profit than previous years. With an average net profit margin of nearly 6 percent, residential construction companies are the most profitable they’ve been since the recession.
“Considering home builders’ financial performance, the red-hot housing market doesn’t appear to be slowing down quite yet,” says Sageworks analyst Libby Bierman.
“Residential construction companies are growing sales at an extraordinary rate and earning pre-recession profit margins. In other words, not only are they increasing revenue--they are also squeezing more profit out of each revenue dollar.”
An examination of the fastest growing industries in the Sageworks database puts residential construction as the second fastest growing industry in the United States over the past year. In fact, 12 of the 20 industries featured on this list were in some way related to construction, indicating that home builders are not the only professionals benefitting from the continued housing boom. Contractors, architecture firms and real estate brokers are also growing revenues at a strong rate.
In an examination of the 20 industries with the highest rates of sales growth, Sageworks identified 12 sub-sectors that were related to construction. All of the industries in the list that are tied to construction experienced higher sales growth over the last 12 months than the average privately held company in Sageworks’ database.
￼"The economy is just improving in general, and these industries are indicators that things are moving in the right direction,” says Sageworks analyst Chuck Nwokocha.
While there’s no guarantee these industries will continue growing at a strong pace, Nwokocha says, it is likely that they are currently creating opportunities for other industries that provide supplies, distribution or back-office services.
The chart below shows the sales growth and net profit margins of privately held residential construction companies since 2007.