LGIH Posts Fantastic Earnings


Q4 Home Sales Revenues increased 71.0% to $405.0 million YoY
Q4 Home Closings increased 61.9% to 1,844 homes YoY

This was all expected as the Q4 2016 was pretty weak. However the results for the whole year are more than impressive:

Net Income increased 51.0% to $113.3 million, or $5.24 Basic EPS and $4.73 Diluted EPS
Net Income Before Income Taxes increased 50.8% to $171.4 million
Home Sales Revenues increased 50.1% to $1.3 billion
Home Closings increased 40.4% to 5,845 homes

The margin is down 1% and 2% for Q4 - I assume building is getting more expensive with the rising volume. However from the earnings perspective volume far outweighs the loss on margin.

The best part for me is the outlook for 2018:

The Company believes it will have between 85 and 90 active selling communities at the end of 2018, close between 6,000 and 7,000 homes in 2018, and generate basic EPS between $6.00 and $7.00 per share during 2018.

So if they hit their low estimate with current PE the share price would be around $90 in one year! It’s not unreasonable to see even better result as they have underestimated their results in the past years.

Company believes 2018 gross margin as a percentage of home sales revenues will be in the range of 24.0% and 26.0% and 2018 adjusted gross margin (non-GAAP) as a percentage of home sales revenues will be in the range of 25.5% and 27.5% with capitalized interest accounting for substantially all of the difference between gross margin and adjusted gross margin.

They are not expecting their gross margin to fall under what it was in current quarter. Sounds good!


I’m guessing the market is disappointed that they turned 71% revenue growth and 62% more closings into only 42% EPS growth, even as ASP rose. That’s probably why the stock is down slightly premarket.



The market should not really be surprised. They have hit their guidance numbers from Q3 pretty well:

Active selling communities
Guidance 75 - 80
Actual 78

Guidance >5,400
Actual 5,845

Guidance $4.75 - $5.15
Actual $5.24

Gross margin
Guidance 25.0% - 27.0%
Actual 25.5%

I suspect it’s the share dilution that is not to the market’s tastes. They guided for basic EPS, delivered way more homes than they guided for and diluted the shares. Also, as you say they turned 71% revenue into 42% EPS growth even though the gross margin dropped only 1%.

Those are the two things the market may not like. I’ll have to look into the cash flow statement to see where the money went but I do have enough confidence in the management after being a share holder for 2 years. I’m sure they handle the company well.

That said we might be in for another PE contraction just like at the start of the last year before the market realizes the company investing in more real estate is a good thing.


It has been down 10% today. Hate to see what would have happened if they had posted a bad quarter! At least I had trimmed a bit on Saul’s selling, but it’s still a big hit today.

Every time I try to “outsmart” Saul (not really) by for example- keeping LGIH until earnings… it comes out the same. Saul smart, Bob dumb.

I’m still going to go my own way (and not be a Saul mirror- bad form). It’s just I wish I could develop that secret sauce for myself that Saul has. It’s obviously his decades of experience, but Saul’s accuracy is astonishing.

Saul- thank you for your patience and time with which you unselfishly share with us.

For the record- I’m probably going to hold onto LGIH another quarter, maybe more. I understand the cyclical nature of this sector so eventually I will let it go, but I’m reluctant to release a continuing high performer like LGIH. Or am I price anchoring?? Hmmm…

  • Bob

I am not optimistic about LGIH as an investment this year when I compare the future possibilities to my other investments.

2016 to 2017 provided several key opportunities for LGIH to excel and management navigated these opportunities expertly leading to a spectacular year for the company.

2017 to 2018 in comparison provides no obvious opportunities to excel, merely opportunities to continue taking advantage of current market conditions. Meanwhile, 2017 is a rather challenging comparison. Management is clearly aware of this and also aware that 2018 could look bleak in comparison to 2017, thus the highly conservative low end to guidance.

When I compare this to the possibilities for my other investments, I don’t see any compelling reason to stay invested and numerous compelling reasons to shift this money elsewhere as opportunities arise.


… and taking another beating today

Down -9% again today - sitting about 30 cents above the 200 day EMA, first time it has been down to the 200EMA since May 2017. What do you guys think? Worth a speculative buy looking for a bounce?

I’m in the same boat and I concur. Are you anticipating a small bounce back in a day or two and sell or just release it now? The former would be probably be considered price anchoring, I assume.

What do you guys think? Worth a speculative buy looking for a bounce?

It might, but I think it’s the same kind of contraction we have seen last year - it may take a quarter or two for it to bounce back.

Here’s a thought - in the conference call the CEO was asked why there is such a high share dilution and he said that a large share conversion kicks in if the average stock price for the quarter is above $63. This means that if the price for stays this low for the rest of the quarter they will report a lot less dilution in Q1 2018. It might be worth to wait and see whether this will happen. It would require the stock to stay at the current levels or lower for the rest of March though as it was over $70 on average in January…