LGIH, some analysis, and a new position

Thanks to PuddinHead for the suggestion of this nice stock (Post #12276). I took a small try it out position after researching it a bit. Here are some of the figures and some of the analysis that I came up with. (Their IPO was in November 2013, by the way).


2012:    --   --    --   --  = 143
2013:    36   60    68   77  = 241
2014:    76  106    93  108  = 383
2015:   121  159

What can we deduce from this. To start with, Revenue was up 68.5% from 2012 to 2013, and up 58.9% from 2013 to 2014. It’s up 53.8% in the first six months of this year, so the law of big numbers is causing some expected slow down in growth, but certainly not a lot.

The only apparent anomaly in this picture was the sequential decline in the Sept 2014 results (from 109 to 93). This may actually work in our favor as investors, as closings for this September’s quarter were up 9.5% sequentially, so there should be a close to 70% year-over-year increase in Revenue announced.


2012:    --    --    --    --  =  43
2013:    12    24    27    44  = 107
2014:    22    43    34    39  = 138
2015:    33    66

I figured pre-IPO earnings by dividing the Net Income by the current number of shares, which is pretty stable. Earnings were up 149% from 2012 to 2013, and up only 29% from 2013 to 2014, but they were held back by whatever was going on in that Sept quarter of 2014 (when they had a sequential drop parallel to the drop in Revenue). They are up 50% in the first six months of this year, so they are re-accelerating from the 2014 pace.

The sequential decline in the Sept 2014 results (from 43 to 34) may also work in our favor as investors. As mentioned above, closings for this September’s quarter were up 9.5% sequentially, so earnings should at least be equal to June’s 66 cents earnings, and there should be a close to 100% year-over-year increase in earnings announced.

Now what’s going on with that sequential decline in the Sept 2014 results? If we look at 2013, we see a nice steady sequential increase each quarter. My guess is that the outlier is that huge revenue and earnings bump in the June quarter of 2014, and that that is what makes September 2014 look weak. (That big June quarter is not explained in the press releases.)

Adjusted Gross Margin Percent

2012:    ----    ----    ----    ----     = 28.0
2013:    26.9    27.5    27.4    25.9  = 27.3
2014:    27.5    27.9    28.3    28.9  = 28.2
2015:    27.8    28.2

What can we deduce from these results. Well, Adjusted Gross Margin looks very stable, with only slight ups and downs, and certainly no alarming fall-off in recent quarters.

Closings in the quarter

2012:    ----   ----   ----   ---- = 1062
2013:    253    411    448    505  = 1617
2014:    485    662    557    652  = 2356
2015:    671    853    934

The 934 closings for the Sept quarter was just pre-announced. Closings were up 52% from 2012 to 2013, and up 46% from 2013 to 2014. They were up 33% in the first six months of this year due to the huge June quarter last year, but the Sept quarter was preannounced at up 68%. That was great results.

Average Selling Price (in 1000,s)

2012:    ----   ----   ----   ---- = 135
2013:    141    144    152    153  = 149
2014:    156    161    166    166  = 163
2015:    180    186

This is how their revenues can go up faster than closings. The dollars they make on each house goes up with the selling price. If we look back two years from the Mar quarter of 2015 to the Mar quarter of 2013, we see that the average house price went from $141,000 to $180,000, and the June quarters went from $144,000 to $186,000. Those are gains of 28-29% in two years.

PE and 1YPEG
At the current price, the PE is about 19 and the rate of growth of trailing earnings is 26% and a 1YPEG of 0.71. However, based on the pre-announced closings, in the soon to be reported Sept quarter they should have earnings of about 70 cents, trailing earnings of $2.08, a PE of 15.6, and growth of trailing earnings of 45%, giving them a 1YPEG of 0.34, which is even much better.

Cash and Debt
I don’t know how to evaluate this, but as of the last quarter they had Real Estate Inventory of $407 million and Notes Payable of $240 million, which is certainly better than the other way around.

Remember this is likely to be a cyclical industry, and I’m just taking a small position.



Wow, thanks for the work! One day I will spend more time on real numbers for the board. I need to mimic this for Dycom. Maybe this weekend.

1 Like

Saul, when reviewing the quarterly results, I noticed a strong improvement in the % of operating income to sales in the June '15 qtr. From 10.7 to 10.6 to 9.7 and then 13.4. I couldn’t find the reason for it other than sales seem to have finally reached a point where SG&A is not growing as fast. If the trend continues, the September quarter earnings may “pop” even more than projected.

My quick assessment of inventory is that it is up about 20% in units YoY based on using an average sales price of 190 for the Sept '15 qtr. (basically divided inventory by 70% of sales price/unit to get a rough idea of units on hand) Units closed, however, have grown at a bit more than 40% YoY, so the growth in days sales in inventory isn’t worrisome (unless housing slows) especially since borrowing has slowed as cash flow from operations has steadily improved each quarter.

In essence, LGIH seems solid at this point to me especially with its positive PEG.