Activist investor Starboard Value has its eye on making some serious changes to construction company Knife River and the stock market has approved of the first effort.

Knife River stock rose 4.3% to $53.66 in premarket trading on Thursday after Starboard Value said it has taken a significant stake in the company, and that if shareholder returns don't improve the board should consider a sale.

Shares of Knife River declined 7.9% on Wednesday and have fallen 27% this year. The stock has declined 32% over the past 12 months. The company was spun off from MDU Resources Group in 2023 and currently has a market value of about $3 billion.

Starboard Value said the stock's underperformance wasn't due to strong business opportunities or the lack of an "attractive industry." Knife River owns around 1.3 billion tons of aggregate reserves-sand, gravel, and crushed stone-with strong pricing power for transportation of the construction materials.

"We believe Knife River has failed to realize its potential, resulting in lackluster and, frankly, unacceptable shareholder returns," said Starboard Value.

The activist investor called on Knife River to narrow the gap between its earnings before interest, tax, depreciation and amortization, or Ebitda, margins with industry peers.

Starboard Value specifically called for management to outline a plan for adjusted Ebitda margin of at least 22% by fiscal 2029.

"If management and the board lack confidence in the company's ability to achieve these targets, then the board should evaluate all potential strategic alternatives," the activist investor added.