Home closings for feb 224 compared to 245 last year. So far this year, 396 compared to 477. Company still guiding to 4700 closings for year.
Scott
2 Likes
Stock is down 5% AH.
Home closings for feb 224 compared to 245 last year. So far this year, 396 compared to 477. Company still guiding to 4700 closings for year.
Wow, that means (4700 - 396) / 10 = 430 homes/month average for the remaining 10 months. I’ve got a decent sized investment in LGIH and think things should be going well for them (based on current housing situation), but that sounds like a pretty high bar to clear as I don’t think they’ve ever had more than a hand full of months with over 400 closings so far.
I know they’re moving into new markets that should increase closings come spring/summer, but it makes me wonder if we’re going to get a SWKS/SKX type report in another quarter or two when management essentially says, “I don’t know what happened.”
Mike
10 Likes
I’m a masonry contractor in Dallas and work for a lot of builders but not LGIH. Because of increased sales in the last 2 years, these additions are selling out fast without new additions yet ready. The market is hot here in Dallas and they are not able to cut enough new roads for new lots for increased demand. But there is new land being developed all over. I will be holding and may considered buying more if price drops.
Wayne
16 Likes
LGIH has been opening new communities here in the Phoenix area…advertising open houses, etc. I’ll have to take a closer look to see how quickly they are selling out.
But one thing that troubles me a bit is a comment made in the recent article in which LGIH suggests that it is still on track to close more than 4,700 homes in 2017. To paraphrase, LGIH basically states that it is on track so long as general economic conditions are similar to those in the 4th quarter of 2016. They specifically mention that the general economic conditions include interest rates and the availability of mortgages.
Given that a likely interest rate hike was signaled by Janet Yellen just a few days ago, along with the possibility that there could be additional interest rate hikes in 2017, is anyone else concerned that that could derail LGIH’s guidance and, more importantly, negatively affect the stock price?
3 Likes
Not sure if my thoughts on this are worth anything, but here they are anyway:
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I’m disappointed not to see a number than reflects the strong sales they mentioned in January. It would have been nice to see 300ish. That said, this is February, so that may be an unrealistic target.
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I’m struck by the fact that 275 closings (to pluck a number from thin air) would have been very encouraging. So 224 (49 fewer houses) can’t really be THAT damning, can it? 49 houses, for a company that plans to close 4700 this year, is nothing.
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It may also be irrational to worry about closings in the winter months. That’s not when most people buy houses.
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I’m still scared to go buy more, even at a likely 5-10% discount. But the more I think, the more I feel like I should buy anyway.
Bear
PS It really would be nice if they’d give a little more detail on the “Strong sales” they’ve alluded to 2 months in a row now. Anybody feel like trying to contact Investor Relations?
2 Likes
LOL - I can’t do subtraction, apparently. 51, not 49.
Bear
For my 2 cents, I was disappointed with the 4700 closing guidance to begin with. Closings in 2015 increased approx. 45% yoy, then in 2016 approx. 22%, to a projection in 2017 of 13% to which they have a ways to go to hit. I understand average selling prices may increase in newer communities but the numbers seem to indicate moderation in growth. Coupled with the cyclical nature of housing, I am going to have to reconsider the size of my investment in this.
Scott
2 Likes
LGIH basically states that it is on track so long as general economic conditions are similar to those in the 4th quarter of 2016. They specifically mention that the general economic conditions include interest rates and the availability of mortgages.
Given that a likely interest rate hike was signaled by Janet Yellen just a few days ago, along with the possibility that there could be additional interest rate hikes in 2017, is anyone else concerned that that could derail LGIH’s guidance and, more importantly, negatively affect the stock price?
Exactly, AZ, although I don’t really think a 0.25% hike would derail many home purchases, my worry is the comment you mentioned gives management an “out” or “excuse” to miss their number, whether it’s caused by the “change” to conditions or not.
If their 4700 homes target has to be reduced at some point this year, that will affect the stock price!
I’m still holding for now, like Bear said, I feel like I should be adding if there is a drop, but if they’re not going to hit 4700, I think we’ll see the low 20’s again.
1 Like
I’m still holding for now, like Bear said, I feel like I should be adding if there is a drop, but if they’re not going to hit 4700, I think we’ll see the low 20’s again.
Based upon their monthly closings to date in 2017, how many months do you wait to see if they are more likely than not to hit 4700? Kind of a rhetorical question but, from where I sit, if they don’t start hitting higher numbers in monthly closings in another month or so, I won’t feel very confident that they will beat the number of closings in 2017 that they did in 2016.
In other words, I think if the number of closings each month don’t pick up in another month or so, the price will go down to the low 20s well before the end of the year. Just my 2 cents.
how many months do you wait…
In other words, I think if the number of closings each month don’t pick up in another month or so, the price will go down to the low 20s well before the end of the year. Just my 2 cents.
Not sure you’ll have to wait. I kinda feel like this will be priced in Monday.
Yahoo says the target for Mar17 quarter revenue is 199M. Even if ASP was up to 215k, they’d need to close 531 homes in March to hit that. I think that expectation will go down appreciably. My poll kind of indicates the same: no one really expects them to hit 4700 homes this year. If they get back on track it would probably be a big boon to the shares.
I also think they’ll beat on the Dec16 quarter when they report Tuesday. (They only need ASP to be about 207k to hit.) I wonder if that will even have an affect?
The question is, if I’m right and we see a cheaper price this week, is it a buying opportunity? I’m just not sure I know how to make that call. Largely because I don’t think anyone can know what the housing market will do. Maybe now is the time to be greedy when others are fearful. Maybe it’s a time to cut bait (though cutting bait might make more sense if the company were trading on any optimism at all).
How can you tell in a cyclical industry?
Bear
1 Like
Hi Bear:
Not sure if my thoughts on this are worth anything, but here they are anyway
- It may also be irrational to worry about closings in the winter months. That’s not when most people buy houses.
- I’m still scared to go buy more, even at a likely 5-10% discount. But the more I think, the more I feel like I should buy anyway.
this is a perfect example IMHO why I believe investing for capital gains is a lot more difficult than investing for income as I do.
Let’s assume for the moment LGIH was a dividend paying company that was growing and increasing the dividend every year they would have to give signals to their investors about the dividend going forward that could wipe away the fears of those paying attention and could create the once in a lifetime golden opportunity for wealth creation.
Back in 2009 when the world almost ended in the financial meltdown and everything was collapsing. Many companies went under never to be heard of again. One of the securities I owned and added to for years was MWE. They paid an increasing distribution every quarter. As the financial markets closed and prices collapsed they arranged a Joint Venture with a Hedge Fund to continue their growth. Of course we, the investors complained that they had sold out and gave away the company. And the prices kept dropping. The CEO bought a chunk of shares on the open market. The price dropped further-The founder bought a chunk and the price dropped further It was drawing close to the time to declare the quarterly distribution The price had dropped to where the annual yield was about 38%. They raised the distribution one penny (Yield over 40%) and the stock started up and about 10 days later The founder’s daughter bought 5000 shares and the stock kept climbing and recovered in short order.
The key to me was the ONE PENNY increase by MWE at that time. Remember that was the time Lehman Bros and Bear Stearns went Bankrupt GM went Bankrupt Goldman Sachs and Bank of America ran to Warren Buffett for money Ford Stock was selling for under $1.00----and MWE raised the distribution ONE PENNY.
b&w
4 Likes
What worries me is to see the stock where it is while the Homebuilders ETF is very strong. Maybe an indication that LGIH is not as strong as the other homebuilders. Personally, I will not hold the stock any longer.
The ETF I meant is ITB
I still don’t consider myself an investor on a par with most who post on this board. Though I’ve dabbled in the market for many years, it wasn’t until I started reading this board that I started to get serious. That was when the board had a few hundred posts. I’m still learning.
Given that disclaimer, I trimmed LGIH significantly. It was one of my largest holdings. From my perspective, it had been moving mostly sideways for too long. Management says they’ll hit 4700 closings this year. I can’t see how, but even if they do, the growth rate is still slowing. They probably have some room to raise ASP, but it can’t get too high or they’ll price themselves out of their primary, first time buyer’s market. The low end of the resale market is probably their biggest competitor. I don’t know if it’s true everywhere, but where I live (Seattle area) a lot of people like the “charm” of an older home as opposed to a cookie cutter home in a new development.
I’ve still got a fair amount of LGIH, but I redeployed my trimmings to other companies (SHOP, PAYC, FB, IDXX a couple others) that I felt were better performers. Something I’ve learned from Saul, put your money where there’s positive motion (OK, that’s not always true, but almost nothing Saul says is always true). A benefit of not having too many holdings is that it’s not too hard to watch all of them. If conditions change you are always free to change your mind later and reallocate (tax and other consideration notwithstanding).
6 Likes
I will be holding and may considered buying more if price drops.
These anecdotal evidence are great but in reality it means nothing for LGIH. LGIH as a company can have troubles while the industry continues to grow. So there is a caution for you not to read too much.
But the more I think, the more I feel like I should buy anyway.
I haven’t looked at it, but if I am planning to buy then I would first check what is the average FICO score for LGIH buyers. If there average customer is at the lower end of credit spectrum then you need to factor that rate increases would impact LGIH disproportionately compared to the industry.
You may want to check that before you make any buy decisions.
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