LGIH is down 4% right now. Seems like their announcement from the 4th of January did not compell the market too much til now. They have blown it out of the park beyond anyone’s expectations:
http://investor.lgihomes.com/releasedetail.cfm?ReleaseID=105…
I wonder if the market get’s “caught by surprise” in the next quarterly release and it’s a good time to buy some shares today. My portfolio is already 20% LGIH now.
LGIH is 8% of my portfolio, down from 20+% a few months ago. Trimmed too early from profit standpoint, but for good reason, IMO. At the current price, LGIH is trading at 15 times my 2017 eps projection. At a 13 multiple it would trade at $65.91. A 15% price reduction from here would be $64.60-ish. I like fat pitches and am content to wait, should that happen. The question for us is whether we would be greedy or fearful at that point. I can see $6.80 to $6.90 per share for 2018. But even so, market sentiment could cut the multiple by a third and neither you nor I nor the company have anything to say about market sentiment. And since I don’t see LGIH’s business model giving it a Foolish 5-year, or 3 to 5 year, competitive advantage period (and/or a limit on total addressable market)…, my choice is to keep LGIH where it is unless I do get a fat pitch.
That is what I am thinking right now. On the other hand, since $100+ per share is a reasonable possibility in a year or so, +30%, what risk am I willing to take? Do I like it better than NVDA (13%), SQ (12%), ANET (10%), FB (5%), NTNX (4%)? At least LGIH does not move at “tech time”.
Sigh, needing a better bargain,
KC
since $100+ per share is a reasonable possibility in a year or so, +30%, what risk am I willing to take?
KC,
Good work as usual. I agree on all counts…except I’ll defer to you on the EPS projections.
And I agree, not a fat pitch. Of course, it all depends on the PE multiple, and it’s not crazy to think it could go to 20 if optimism continues, or sub-10 again if there were more fear about the market, industry, or company. So that instead of your $100+ per share, it could be anywhere between, oh…
$6.90/share * 10 = $69
$6.90/share * 20 = $138
…even if you’re right on the $6.90 part. So the key to me is this, as you said:
I don’t see LGIH’s business model giving it a Foolish 5-year, or 3 to 5 year, competitive advantage period…
Because of that fact, I can’t tell if the PE should be 10, 20, or whatever. To put it differently, this one, because of its cyclicality, just inherently has more downside than the SaaS guys…even though it trades at a seemingly reasonable PE. Now 17, it’s historically high, and higher than, for instance, Micron – another cyclical company with good results. Micron’s PE is ~6…to me that is more of a fat pitch.
Staying on the sidelines (pun intended),
Bear
One other factor to ponder, a two edged sword. On one side, we know we have a “fat pitch” comparison coming up on January sales. However, there is a historical trend that the market might not anticipate: the common drop in sales from December to January. In '13/'14 the absorption rates were 8.6 in December and 4.4 in January. In subsequent years these metrics were 6.3 and 3.6; 8.8 and 4.3; and last year’s shocking 7.4 to 2.8. This year it will be 9.9 and x.x? We could easily see a “4-handle” which can be received as either 50% above January last year a 50% drop month-over-month from December.
One can only hope that they didn’t drain the pipeline with December sales (or maybe hope they did if you want better price point).
KC
KC,
I understand your worries, but I don’t think that you can base your investment decisions based on them:
But even so, market sentiment could cut the multiple by a third and neither you nor I nor the company have anything to say about market sentiment
This can happen to pretty much any company in your or my portfolio. There is nothing that can be done about that. If I base my decision simply on company’s performance, LGIH is the best bang for my buck. Everything points to them posting record earnings (again) in the next conference call.