Rockwool: Built for the Long Term

Rockwool is a global leader in stone wool insulation, with a business model rooted in product quality, operational efficiency, and sustainability. From its high-performance insulation solutions for buildings and industry to its growing systems segment and global manufacturing footprint, Rockwool is positioned at the intersection of energy efficiency and climate resilience. With expanding capacity, rising profitability, and exposure to long-term renovation and decarbonization trends, the company is scaling for the future. The question is: Should this insulation specialist be part of your portfolio?

This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me.

For full disclosure, I should mention that I do not own any shares in Rockwool at the time of writing this analysis. If you would like to copy or view my portfolio, you can find instructions on how to do so here. If you want to purchase shares or fractional shares of Rockwool, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started on investing with as little as $50.

The Business

Rockwool is a Danish company and the world’s leading pure-play producer of stone wool solutions. Founded in 1909, Rockwool has established a global footprint by converting volcanic rock into high-performance stone wool products used in construction, industry, transportation, and horticulture. The company operates through two segments: insulation, which includes solutions for residential, commercial, and industrial applications such as roofs, façades, floors, HVAC systems, marine vessels, and fire protection; and systems, which focuses on higher-value-added products like acoustic ceilings and walls, façade cladding, horticultural substrates, engineered fibers, and vibration control solutions. Its products are marketed under strong, well-established brands including ROCKWOOL, Rockfon, Rockpanel, Grodan, and Lapinus. What sets Rockwool apart is its unwavering focus on stone wool. As a pure-play specialist, the company channels all its R&D, capital investments, and operational expertise into continuously refining the material and expanding its applications. This deep commitment has allowed Rockwool to develop proprietary manufacturing technologies and highly automated production systems that few competitors can replicate. While others produce stone wool, Rockwool’s scale, efficiency, and product quality are widely regarded as best-in-class. Its vertically integrated, capital-intensive operations raise significant barriers to entry. The company further strengthens its position through long-term customer relationships, a global manufacturing and distribution footprint, and value-added services that enhance the customer experience across both construction and industrial markets. In addition, the inherent sustainability of stone wool—being recyclable, non-combustible, and energy-efficient—aligns Rockwool with global trends prioritizing energy efficiency, fire safety, and climate resilience. Combined, these factors give Rockwool a durable competitive moat and position it for long-term growth across its key markets.

Management

Jes Munk Hansen serves as the CEO of Rockwool, a role he assumed in 2024 after serving on the company’s board of directors for a year. He brings over two decades of international leadership experience in the building materials industry, with a strong focus on energy efficiency and sustainability. Prior to joining Rockwool, he was CEO of the Danish defense and aerospace company Terma. He also held senior leadership roles at Grundfos, where he led the North American business for five years, and at OSRAM and LEDVANCE, gaining deep expertise in energy-efficient technologies. Jes Munk Hansen holds dual Danish and American citizenship. He earned a master’s degree from the University of Copenhagen and an MBA from London Business School. In addition to his role at Rockwool, he serves as Vice Chairman of the Confederation of Danish Industry (DI) and sits on the board of WS Audiology. Known for his commitment to sustainable growth, he has emphasized the importance of aligning strong business performance with environmental responsibility. Upon his appointment, he stated, “Rockwool is a globally leading company, and that comes with significant responsibility. For me, it’s important to demonstrate that energy efficiency, sustainability, and business results can align.” His deep respect for Rockwool’s legacy of innovation and operational excellence is matched by a clear ambition to build on that foundation. Having followed the company throughout his career, he now sees it as both a personal and professional mission to help guide Rockwool through its next phase of sustainable, global growth. I believe Jes Munk Hansen is well-positioned to lead Rockwool, given his proven leadership in international industrial companies and his alignment with Rockwool’s long-term commitment to innovation and environmental responsibility.

The Numbers

The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history, with all numbers exceeding 10% in each year.  Rockwool has historically maintained a high ROIC, falling below 10% only once in the past decade, reaching 8,5% in 2015. In 2024, ROIC reached its highest level in a decade at 17%. The consistently high ROIC above 10% indicates that Rockwool is a quality long-term compounder. Rockwool does focus on ROIC, as it occasionally features in both earnings calls and annual reports. I personally like when companies focus on ROIC, as it shows an emphasis on efficient capital allocation and long-term value creation. The increase in ROIC in 2024 was particularly due to higher profitability, driven by effective cost management, increased productivity, and lower energy costs. It’s also worth noting that this performance came in a year of continued investment in new capacity and sustainability initiatives - further highlighting the strength of the underlying business.

The following numbers represent the book value + dividend. In my previous format, this was referred to as the equity growth rate. It was the most important of the four growth rates I used in my analyses, which is why I will continue to use it in the future. As you are accustomed to seeing numbers in percentage form, I have decided to provide both the actual numbers and the year-over-year percentage growth. I don't have the growth rate from 2014 to 2015 as Finbox only provides data for the past ten years. Rockwool has managed to increase its equity every year in the past decade, except for 2020, which was affected by the pandemic, which is very encouraging. This steady growth in equity reflects Rockwool’s ability to retain earnings and reinvest them at attractive returns, supported by its consistently high ROIC. It shows that the company is not only profitable but also disciplined in how it allocates capital—reinvesting in productivity improvements, capacity expansion, and sustainability initiatives that strengthen its competitive position. For long-term investors, this pattern of value creation is a strong signal of financial health and management focused on compounding shareholder value over time.

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins provide a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. It is not surprising that Rockwool has managed to achieve a positive free cash flow in every year over the past decade. While there have been periods of lower free cash flow - most notably in 2019 and 2020 - these were years of elevated capital expenditures, with 2020 also impacted by the pandemic. Encouragingly, Rockwool delivered its highest free cash flow ever in 2024, even as capital expenditures nearly returned to 2019 levels. This signals both improved profitability and better capital efficiency. The levered free cash flow margin has also trended higher recently, with 2023 and 2024 marking the strongest margins of the past decade. In terms of capital allocation, Rockwool continues to prioritize dividends, increasing payouts by 50% this year. While the company has historically avoided share repurchases, this changed in 2024 with a 2% reduction in the share count. A newly approved buyback program for 2025 is expected to reduce the share count further. As a result, shareholders are now set to benefit from both higher dividends and fewer outstanding shares. The current free cash flow yield stands around 5%, which is above Rockwool’s 10-year average and suggests that the stock is trading at a fair valuation. That said, we will return to valuation in more detail later in the analysis.

Debt

Another important aspect to consider is debt. It is crucial to assess whether a business has a manageable level of debt that can be repaid within a three-year period, calculated by dividing total long-term debt by earnings. Upon analyzing Rockwool’s financials, the company currently carries no long-term debt. Hence, debt is not a concern. In fact, Rockwool has maintained a debt-to-earnings ratio of zero for more than a decade, making it unlikely that debt will become an issue in the foreseeable future.

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Risks

Its energy-intensive manufacturing process is a risk for Rockwool. Producing stone wool requires extremely high temperatures, and as a result, energy and raw materials combined make up roughly half of the company’s input costs. This high dependency means that fluctuations in energy prices can significantly impact profitability. Foundry coke remains the company’s primary energy source, supplemented by a growing use of electricity and gas. However, coke is both carbon-intensive and increasingly under scrutiny. Future regulatory developments - such as stricter EU climate policies, national taxes on CO₂ emissions, or outright restrictions on coke usage - could raise operating costs or force Rockwool to accelerate its transition toward cleaner energy sources. While Rockwool has already begun decarbonizing its production by shifting some factories from coke to gas and others to electricity, this transition is not without challenges. The move toward electrification, while essential for long-term sustainability, could shorten the useful life of existing coke-based production assets. This raises the risk of higher depreciation charges or stranded assets. Moreover, access to affordable, reliable green electricity is uneven across regions, particularly in parts of Europe where grid capacity is limited. These factors could slow the company’s decarbonization plans and lead to higher upfront capital expenditures. Although Rockwool’s insulation products directly support climate goals—and may benefit from stricter environmental regulations—the company must also manage the risk that those same policies increase its own operational burden. The dual pressure of reducing emissions while maintaining cost competitiveness is a key strategic challenge for Rockwool going forward.

Macroeconomic conditions represent a meaningful risk for Rockwool, particularly given the company’s high exposure to the European construction market. In 2024, growth across the European construction sector remained sluggish, and this trend is expected to persist into 2025, with little sign of a meaningful recovery. Since a large portion of Rockwool’s revenue is tied to insulation used in new buildings and renovation projects, prolonged weakness in construction activity can directly limit its revenue growth. If construction demand continues to stagnate, Rockwool may face slower volume growth, especially in its core European markets. This could lead to increased competition and pricing pressure, particularly in more cyclical segments of the business. Despite its ongoing expansion in North America and other regions, Europe still accounts for a substantial share of Rockwool’s business, making the company vulnerable to regional economic softness. Beyond construction-specific trends, broader macroeconomic factors such as inflation, rising interest rates, and weak consumer and business sentiment also weigh on demand. Higher financing costs can delay or reduce investments in both residential and non-residential projects, while inflation may cause homeowners and businesses to postpone renovations. These pressures can intensify over time, especially in industries like building materials, where demand is closely tied to how much is being invested in construction and property upgrades.

Rockwool’s continued passive ownership of its Russian operations presents a multifaceted risk to the business—financially, operationally, and reputationally. The company maintains ownership of four factories in Russia but exercises no direct control or communication with local management. This hands-off approach, imposed by sanctions compliance, leaves Rockwool with virtually no visibility into the performance, decision-making, or operational conduct of its Russian subsidiaries. As a result, there is heightened uncertainty around financial reporting, legal compliance, and the long-term viability of these assets. One of the most serious concerns is reputational risk. Rockwool has faced ongoing criticism, especially in Denmark and Ukraine, for maintaining ownership in Russia despite the war in Ukraine. As public scrutiny increases, so does the risk of backlash from key stakeholders - including investors, customers, and regulators - who may view continued Russian involvement as incompatible with ESG principles. This reputational pressure could translate into lost business, weaker brand perception, or reduced institutional interest. There are also regulatory and legal risks. Rockwool must navigate a complex and evolving web of EU, U.S., and UK sanctions. Any inadvertent violation - even without active involvement - could result in serious legal consequences, fines, or further scrutiny from authorities. At the same time, Russia has enacted its own countermeasures, including the threat of nationalizing Western-owned businesses. This raises the possibility that Rockwool could lose control of its Russian assets altogether through expropriation or forced divestment - potentially without compensation. Compounding this issue is the lack of transparency regarding the financial contribution of the Russian business. Public records from Russia have led some analysts to estimate that the Russian operations may account for a sizable portion of Rockwool’s earnings, potentially more than 15% of EBIT. However, due to the lack of direct oversight and restrictions on financial communication, Rockwool is unwilling or unable to confirm these figures. This ambiguity further complicates the investment case by introducing questions about earnings quality and concentration risk.

Reasons to invest

Energy efficiency is one of the strongest structural growth drivers for Rockwool. Buildings account for nearly one-third of global energy consumption and CO₂ emissions, making them a prime target in the global effort to reduce carbon output. Proper insulation is one of the most cost-effective ways to cut energy use - Rockwool’s stone wool insulation, for example, can reduce a building’s heating needs by up to 70%. This positions the company as a key enabler in achieving climate goals. In Europe, the push for energy-efficient buildings is accelerating. Nearly 75% of the building stock is considered energy inefficient, and the EU’s Energy Performance of Buildings Directive (EPBD) mandates improvements through renovations and higher insulation standards. Member states are now required to translate this directive into national legislation, unlocking a wave of renovation projects. Rockwool’s non-combustible, high-performing insulation solutions are well aligned with the directive’s objectives, both in terms of energy efficiency and fire safety. As a result, the company expects the EPBD to be a major growth catalyst in the coming years and is expanding capacity in Europe to meet the anticipated demand. Importantly, Rockwool’s offerings are also aligned with the EU taxonomy for sustainable activities, giving it further tailwinds as investors and policymakers increasingly prioritize climate-aligned business models. Revenue alignment under the taxonomy is particularly strong, given that insulation directly reduces energy consumption and related emissions. Outside Europe, countries around the world are tightening energy efficiency standards and introducing incentives for retrofitting buildings. This broadens Rockwool’s growth potential globally, as governments seek to reduce energy demand and meet decarbonization targets. Whether through public renovation programs or private investment in energy upgrades, Rockwool’s stone wool insulation is positioned as a core solution in making buildings more sustainable, efficient, and climate-resilient.

Rockwool’s commitment to expanding production capacity is a strong signal of its long-term growth ambitions and confidence in rising global demand for sustainable insulation. The company is not just maintaining its market position - it is actively scaling it. Through a series of strategic investments in new factories and production lines, Rockwool is preparing to meet growing demand across key markets in Europe, North America, and Asia. In 2024 alone, Rockwool committed to building new factories in the United States, Sweden, and India; added production lines in Romania and the U.S.; and purchased land for future facilities in the UK and the U.S. It also completed two acquisitions: Vietnam’s largest stone wool manufacturer and a leading UK supplier of external thermal insulation systems. These moves significantly extend Rockwool’s global footprint and enhance its access to high-growth markets. Over the next six to seven years, management plans to build five to six additional factories - an ambitious expansion program by Rockwool’s standards. This growth strategy is underpinned by strong fundamentals. As global demand for energy-efficient, fire-safe, and climate-resilient buildings rises - driven by regulation, urbanization, and large-scale retrofitting programs - Rockwool is well positioned to capture additional market share. A single large factory with 100.000 tonnes of annual capacity could generate between EUR 140 million and EUR 160 million in revenue, underscoring the scale of the opportunity and the potential returns on these investments. Beyond increasing output, Rockwool’s expansion strategy also prioritizes operational efficiency, the integration of new technologies, and the decarbonization of its production. New facilities are being designed with electrification in mind, aligning with the company’s long-term sustainability goals and reducing reliance on fossil fuels like foundry coke.

North America is emerging as a major growth engine for Rockwool, driven by both favorable market dynamics and strategic investment in the region. A key factor behind this opportunity is a structural shift in insulation preferences. The U.S. market has traditionally been dominated by plastic foam and glass-based insulation, but growing awareness of fire safety, sustainability, and performance is prompting a gradual shift toward stone wool. Despite its advantages, stone wool currently holds only about 3% market share in the U.S., leaving significant room for growth even with modest adoption gains. Rockwool is well positioned to benefit from this trend. Stone wool’s superior fire resistance, thermal performance, and recyclability align with tightening U.S. building codes and rising demand for sustainable construction materials. As environmental regulations evolve and construction standards become more stringent, Rockwool’s product offering becomes increasingly relevant to builders, architects, and regulators. Importantly, the North American market is not just a volume opportunity - it’s also a profitability driver. In 2024, Rockwool’s U.S. operations delivered margins above the group average, a performance the company expects to sustain into 2025. This strong profitability, combined with expanding demand, makes North America one of Rockwool’s most attractive markets. With category shifts underway, supportive regulations, and a highly profitable operating base, North America represents a long runway for growth. As Rockwool continues to scale its presence in the region—through added production capacity and increased brand awareness - it is well positioned to capture market share and compound value for investors over the long term.

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Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.

The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 19,17, which is from 2024. I have selected a projected future EPS growth rate of 6%. Finbox expects EPS to grow by 6% over the next five years. Additionally, I have selected a projected future P/E ratio of 12, which is twice the growth rate. This decision is based on Rockwool's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be DKK 101,81. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Rockwool at a price of DKK 50,91 (or lower, obviously) if we use the Margin of Safety price.

The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 6.093, and capital expenditures were 2.804. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 1.963 in our calculations. The tax provision was 1.089. We have 210,5 outstanding shares. Hence, the calculation will be as follows: (6.093 – 1.963 + 1.089) / 210,5 x 10 = DKK 247,93 in Ten Cap price.

The final calculation is called the Payback Time price. It is a calculation based on the free cash flow per share. With Rockwool's Free Cash Flow Per Share at DKK 15,63 and a growth rate of 6%, if you want to recoup your investment in 8 years, the Payback Time price is DKK 163,94.

Conclusion

I believe Rockwool is an intriguing company with strong management. The company benefits from a competitive edge through its scale, efficiency, and product quality, which is widely regarded as best-in-class. In 2024, Rockwool achieved its highest ROIC, free cash flow, and levered free cash flow margin in a decade - despite elevated capital expenditures - which bodes well for the company’s future earnings power. That said, there are risks to consider. Rockwool’s energy-intensive manufacturing process makes it vulnerable to volatile energy prices and regulatory pressures, especially given its reliance on carbon-intensive foundry coke. While the company is actively transitioning to cleaner energy sources, this shift entails operational challenges, potential asset write-downs, and higher upfront investment costs. Macroeconomic conditions also pose a risk due to Rockwool’s heavy exposure to the sluggish European construction market. Persistent weakness in construction activity, coupled with inflation and rising interest rates, could dampen insulation demand. In addition, Rockwool’s passive ownership of four factories in Russia presents financial, legal, and reputational risks. The company has no operational control or visibility into these assets, and its continued involvement has attracted criticism and raises the risk of sanctions violations or asset loss through nationalization. On the positive side, energy efficiency remains a strong long-term growth driver. Rockwool’s stone wool insulation can significantly reduce building energy use and aligns well with tightening global climate regulations. With increasing demand for sustainable construction and large-scale renovation programs Rockwool is well positioned to benefit from the global push to reduce emissions and improve building performance. The company’s ongoing investments in capacity expansion further support its growth outlook. Rockwool is scaling operations across Europe, North America, and Asia to meet rising demand. North America, in particular, stands out as a compelling opportunity. With only a small share of the U.S. insulation market and growing awareness of fire safety and sustainability, Rockwool is well positioned to gain market share. Its U.S. operations are already delivering above-average margins, and continued expansion should support long-term profitable growth. While I believe Rockwool is a high-quality business with attractive long-term potential, the lack of transparency around its Russian operations remains a concern. Although the company donates DKK 100 million annually to a foundation for Ukraine’s reconstruction, I do not like that Rockwool is unwilling or unable to provide financial figures for its Russian business. Because of this uncertainty, I would require at least a 50% discount before investing. Thus, I believe Rockwool could be a compelling long-term investment at the Ten Cap price of DKK 247..

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