Installed Building Products is riding the wave of robust home building. Double-digit growth in new starts of residential, single-family homes has increased demand for its more profitable spray foam insulation. Also, it’s profiting from buying smaller companies that install complementary products such as garage doors and gutters.

We think the boom for the industry and the company will continue. Analyst expectations for 65% earnings growth this year and 30% next year look likely based on recent trends. We’ve put a $46 price target on the company, 30% higher than its current price, and we think that’s being conservative.

Here’s how we arrive at that number: Given it’s a cyclical industry, home construction companies’ price-to-earnings ratios trade at a discount to their growth rates. Right now that discount is 50%, so for a company such as Installed Building Products (NYSE: IBP) with a 48% growth rate, its PE should be 24—but it’s only 18. As that gap closes, it should result in a 30% stock price appreciation.

Robust Sales

We see that the housing rebound is mid-cycle. While 2015 housing starts were double the nadir of 2009, they were still almost 50% below the 2005 peak. Starts are expected to grow 10% for at least the next two years.

According to the U.S. Census Bureau, single-family new starts grew 22% in the first quarter of this year, up from the 11% growth in 2015. Added to this growth is the backlog from homes that builders started last year but have not yet finished.

National home builders KB Home and Lennar both recently reported robust sales. KB Home sold 30% more units in the first quarter than a year ago and pointed to a 10% unit increase in backlog. Lennar saw 12% growth in both deliveries and backlog. Although IBP counts them both as customers, most of its revenue comes from local and regional builders that enjoy the same unit growth but do not demand volume discounts.

Installed Building Products has been capitalizing on sector growth better than most. Revenue rose 28% in 2015 and 48% in the first quarter of 2016. Profits exploded 65% to 89 cents per share in 2015. And first-quarter profit growth this year showed no sign of slowing when it more than quadrupled to 21 cents per share compared to the same quarter in 2015.

Expanding Business

The majority of IBP’s revenue comes from installing insulation in residential construction. IBP recognizes revenue only when its insulation, garage doors or shelving is installed in the house. There is typically a five- to six-month lag between the time that a house is started and when these products are installed. So that 22% number for new starts from the Census Bureau will feed IBP growth for the next six months.

Consistently acquiring companies is increasing IBP sales. It’s bought more than 100 companies over the past 15 years. Acquisitions expand the company geographically and give it expertise in new home components such as garage doors, shower doors and shelving. Adding new products has propelled IBP’s revenue per house from $165 in 2005 to a recent high of $721.

IBP’s double-digit revenue growth, however, is not entirely dependent on acquisitions. Growth without newly purchased companies would have been a still respectable 15% last year.

Once IBP sets up a regional office it can immediately begin cross-selling insulation and other products to local home builders. IBP offers value to the builders by procuring, transporting and installing its products with its own army of specialists.

Spraying Profits

Despite adding new product lines, insulation installation makes up the lion’s share of revenue. Yet a shift to a more profitable type of insulation is puffing up profits. IBP’s August 2015 purchase of Eastern Contractor Services increased the amount of spray foam insulation the company sells.

As of 2015, spray foam made up just 12% of insulation revenue, the same as the previous year. Eastern Contractor, which generated $23 million in annual revenue at the time it was bought, mainly produces spray foam insulation, the most expensive and efficient type of insulation.

Profit margins rose from 27% to 28.5% in 2015. First-quarter improvements were more dramatic, with margins rising from 26% to 28.5%, in what is traditionally the weakest seasonal quarter of the year.

Some of these gains come from the shift to a more profitable product mix, but management also says selling more of its products allows the company to get better prices for raw materials.

Balancing Act

More than 100 acquisitions don’t come without a cost. IBP has financed all of these purchases with debt. Since 2014 the company borrowed $400 million but repaid $327 million of it with strong cash flow. Total debt, including capitalized leases for construction vehicles, equaled $148 million at the end of March.

Interest coverage, which measures how comfortably a company can cover its interest payments, equaled 12 as of the March quarter, meaning the company’s profits equal 12 times its required interest payment. This is a healthy number. IBP is using debt in a smart way to finance these purchases without letting debt levels mount to unruly levels.

Many housing-related stocks have gone public since the 2008 housing meltdown. Luckily for subscribers, many of those companies are in that sweet spot of smaller market cap size that we like so much. We will be hard at work analyzing new names to find other ways to play the measured rebound in housing supply.

In the meantime, move right in with IBP.