Here’s how I’m thinking about it.
Remember that this is not New Orleans, which is actually below sea level and below the level of the Mississippi and just protected by dikes, which broke. Houston is further inland (as I remember) and San Antonio is way inland in dry country, Austin too, and Dallas Fort Worth is way, WAY, inland and West Texas is even further. They’ll just get some rain. The little towns on the barrier islands that got wiped out don’t have any LGIH developments, as far as I know. My guess is that we are talking of something relatively short term here. But that’s just my guess.
Houston is 17% of LGIH’s annual revenue, but if they don’t sell a single house in Houston in a month, that month would represent just one-twelveth of that 17% of the year’s sales, so they’d lose about 1.4% of their total year’s sales. (Remember though that all of their developments are in the suburbs, not downtown where the most flooding is.)
I’d guess, more realistically they’ll lose 85% of sales in the next 30 days, 50% in the month afterwards , and 15% in the third month, which would come to one and a half months’ sales in Houston, or about 2% of the year’s total sales. As Houston is one of their lowest home price areas, that would probably increase the average home sold price slightly. But figure they will lose 2.0% of the year’s sales, assuming conservatively that there’s no catch-up afterwards. …And just to be more conservative let’s raise the lost sales by 25%, to 2.5% of the year’s sales. Not a catastrophe for the company. Remember that we expected LGIH to beat annual revenue estimates by way more than that 2.5%.
To put it in perspective, if I’m really underestimating, and they lose 80% of their Houston sales for the entire next three months, it comes to a loss of all of 3.4% of annual sales, nation-wide. Does that sound like a lot. Here’s a clue: LGIH’s revenue was up 45% last quarter over the year before. And Houston is constantly decreasing its percent of total sales anyway as they open more and more communities around the country.
There’s no change to the company, or its future, just diminished sales short term, like this Jan and Feb, and undoubtedly some increased expenses for repairs of an occasional house under construction. But that’s just how I look at it.
You can’t figure LGIH to be worth 17% less than it was yesterday unless you figure that LGIH has lost 17% of its sales for good! Unless you assume that all of Houston is gone forever! If the price falls to down 10% or 15% on the day, that would seem to me to be a real bargain price!