LGIH closed 365 homes in April

Up from 341 April 2016

http://investor.lgihomes.com/releasedetail.cfm?ReleaseID=102…

Cheers,
nomb

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365 homes closed in April. Looking back to about a month ago, it looked like they would need to average about 437 homes each month for may through December to meet the goal of 4700 homes. So they are still looking like they will fall short. But do they really need to close on 4700 homes in 2017 for LGIH to be a good investment? I’m not convinced that is the case.

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Looking back to about a month ago, it looked like they would need to average about 437 homes each month…to meet the goal of 4700 homes.

And now they need to average closing 447 homes/month for the next 8 months after another not-so-stellar month of sales. Their task keeps getting harder as they keep hitting below the needed average to make their own stated goal. So a third of the year is in the books and they’re at 1126 closings compared to 1185 closings for the first 4 months of 2016. They’re currently showing negative 5% unit growth from 2016. I know, their average selling price will probably increase enough to make up that difference, but still, it would be nice to see some proof of these great sales they say they’re making.

But do they really need to close on 4700 homes in 2017 for LGIH to be a good investment?

They need to hit 4700 for us to believe in and trust what management says, as they’ve been stating that for many months now, though they don’t seem to be getting closer to meeting that goal, if anything, they seem to be getting further away.

I’m still holding, but am starting to think I shouldn’t be.

What do others think?

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But do they really need to close on 4700 homes in 2017 for LGIH to be a good investment?

Here is my projection based on historical and current absorption rates and increase in number of active communities. I am project 4,230 closings for 2017 and average sale price of $219,000, or revenue of $927 million. If net margins remain the same that would give $85.4 million net or $3.88 eps. However, I am concerned that the absorption rate will be only 4.9 sales per month per community, down from 6.0 the previous two years. That has to impact the percent of revenue for sales and general/administrative expense. This is impossible (for me) to quantify. That is a 22% drop in absorption rate. That could drop the $85.4 million down to $61.1 million. However, the sales expenses are probably composed mostly of sales commissions, but also support and administrative and all the training expenses. So each of us would need to come up with an estimate for the impact.

Looking at $3.88, it gives share prices of $42.70, $38.80 and $34.90 for p/e’s of 11, 10, and 9. With finger in the air (to check the breeze, not to salute) I chose $3.68 and p/e of 10 or … $36.80 but a more absorption rate sensitive model says $3.31 but again there is nothing to support that quantification.

Current price $31.03 and I expect a drop today. $36.80 is up 19% when FY 17 is reported. Lot of moving parts. I’m pretty confident in the closings. A 9% increase in sales price, I am less certain. Impact of lower absorption rate, no idea, really.

Last night I set my mind to sell if the closings were not 410 to 420. Now, I am inclined to hold and watch for market reaction.

Comments welcomed.

KC, long LGIH

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Also, note that the press release as shown on LGIH investor page is short. In February they reiterated the 4,700 projection. The April sales release just gives the closing. No comment on 2017 closings prediction.

KC. Long LGIH

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Reiterated 4,700 for Jan, Feb, and March closings press release and for the first quarter home closings press release.

Conference call on Tuesday 9th. Will be interesting. Might be an inflection point! Holding until I hear what they say.

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Out.

My plan is to wait for the Q to see what the affect on net margins is for the lower absorption rate that I am modeling for all of 2017. That rate should be higher for the last 3 quarters, so if SG&A as percent of revenue does not increase (too much) in Q1 I would add shares should the price is still below $30.

BTW, the absorption rate the last two months is, I believe, still the highest in the industry, by far.

KC, long LGIH

Easy question.

Are the top line revenues still accelerating?

Not just growing, accelerating?

If so, are there other companies who’s top line growth is accelerating faster?

Cheers
Qazulight

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