Rapidly growing companies can be expected to slow their growth.
Let’s look at LGIH growth in the number of homes sold.
2014: 2356 units sold
2015: 3404 units sold (44.5% increase)
2016(E): 4000+ (projected by management yesterday)
So in terms of units the growth would be 17.5% which is down significantly from 44.5% growth. However, they said more than 4000 homes would be sold if interest rates remain low, mortgages remain relatively easy to obtain, and the economy does not experience a slowdown. Once question is how much “more than 4000”.
Also, part of LGIH’s earnings growth has been the increasing price of the homes sold. Below you can see how the price has been steadily rising almost each quarter for at least the past 3 years. Will these increases continue?
**Qtr Avg Price Seq % Inc**
9/30/12 $134.20
12/31/12 $138.11 2.9%
3/31/13 $141.28 2.3%
6/30/13 $146.53 3.7%
9/30/13 $151.78 3.6%
12/31/13 $152.47 0.5%
3/31/14 $156.54 2.7%
6/30/14 $160.74 2.7%
9/30/14 $166.10 3.3%
12/31/14 $166.29 0.1%
3/31/15 $179.87 8.2%
6/30/15 $186.20 3.5%
9/30/15 $186.25 0.0%
Yes, the P/E as of today’s price of $24 is 11.5. The 1YRPEG is 0.20. The P/E after the December quarter based on EPS of 80 cents will be 9.4 and the 1YRPEG will be 0.10.
But we will expect the P/E and the 1YRPEG to be higher a year from now (assuming constant stock price). How much higher depends on how much the EPS growth slows.
Chris