GFF

We rate GRIFFON CORP (GFF) as a Buy with a composite score of 68.4/100 at a current price of $87.36. The stock scores above average across the majority of our six quantitative factors and ranks #141 out of 7,333 stocks in our universe, reflecting a favorable risk-reward profile.

The rating is primarily driven by strength in quality (86th percentile) and value (82th percentile), which together account for the majority of the composite score. All factors score above the 40th percentile, indicating no material weakness in the quantitative profile. We assign a Narrow Moat rating (46/100), High uncertainty, and Poor capital allocation.

Key items to watch: whether strong momentum is fundamentally supported by revenue trends; balance sheet deleveraging progress. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

GRIFFON CORP holds a top-quartile position (#5 of 50) within the Construction sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 68.4/100 places it at rank #141 in our full 7,333-stock universe. At $3.5B in market capitalization, GRIFFON CORP is a mid-cap player in the Construction space, which limits certain scale advantages but may allow for more agile strategic execution.

The outlook is moderately positive, with revenue expanding at 0% and favorable momentum (60th percentile) reflecting constructive market sentiment. The business shows steady execution, though the growth rate is below the levels typically associated with high-conviction growth stories. Momentum confirmation provides support for the current price level.

The margin cascade tells an important story: gross margins of 42% (+18.1pp vs sector) narrow to operating margins of 8% (+0.5pp vs sector) and net margins of 2.7%, yielding a gross-to-net conversion rate of 6%. The significant margin erosion from gross to net suggests elevated operating expenses, high interest costs, or other structural drags that warrant monitoring.

At a current price of $87.36, GRIFFON CORP appears undervalued relative to its fundamentals. Our value factor score of 82/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. The stock screens as attractively priced on a majority of these measures, suggesting the market may be underappreciating the underlying fundamentals.

The stock currently trades at a P/E of 57.4x (a 200% premium to the sector median of 19.1x), EV/EBITDA of 17.2x (at a premium), P/B of 37.9x, P/S of 1.6x. The above-sector P/E multiple suggests the market is pricing in superior growth or quality, which our analysis partially supports given strong quality metrics.

We assign a High uncertainty rating to GRIFFON CORP. Key risk factors include significant leverage (1787% debt-to-equity), elevated valuation multiple (P/E 57.4x) that leaves limited margin for error, the combination of leverage (1787% D/E) and thin margins (2.7% net) amplifies downside risk. The wide range of potential outcomes widens our fair value estimate and increases the possibility of permanent capital impairment. Investors considering this name should size positions accordingly and demand a meaningful margin of safety before initiating.

Specific risk factors that inform our assessment include: significant leverage (1787% debt-to-equity); elevated valuation multiple (P/E 57.4x) that leaves limited margin for error; the combination of leverage (1787% D/E) and thin margins (2.7% net) amplifies downside risk. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 70th percentile and quality factor at the 86th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: healthy gross margins of 42% provide a buffer against cost pressures; above-average stability (70th percentile) suggests predictable business dynamics. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile warrants caution and disciplined position management.

We rate GRIFFON CORP's capital allocation as Poor. Key concerns include elevated leverage (1787% D/E). Exemplary capital allocators generate ROE above 20% and maintain conservative leverage — GRIFFON CORP significantly underperforms these benchmarks, raising questions about management's ability to create shareholder value.

Investors should scrutinize management's reinvestment decisions and balance sheet trajectory before committing capital. Poor capital allocation often compounds over time: overlevered balance sheets limit strategic flexibility, while low returns on capital destroy shareholder value. We would need to see sustained improvement in profitability metrics and balance sheet discipline before considering an upgrade.

In summary, GRIFFON CORP receives a Buy rating with a composite score of 68.4/100 (rank #141 of 7,333). Our quantitative framework assigns a Narrow Moat (46/100, trend: stable), High uncertainty, and Poor capital allocation. The average factor score across quality, value, momentum, stability, and investment is 69/100.

Our analysis supports a constructive view on GRIFFON CORP. The combination of identifiable competitive advantages, high uncertainty, and poor capital allocation creates a risk-reward profile that favors accumulation at current levels. We recommend investors consider adding this name to portfolios aligned with the stock's risk profile.