LGIH

Investment Analysis Clubs Saul’s Investing Discussions
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Management Comments from earning release today 5/9/17

“Although closings have been down year-over-year, we maintain our belief that homeownership is still in high demand,” said Eric Lipar, the Company’s Chief Executive Officer and Chairman of the Board. “Due to the strength of our sales over the past 90 days and strong ending backlog for the first quarter, we anticipate closings for 2017 to be weighted towards the second half of the year.”

“As inventory catches up to this demand over the next few months, <b we remain confident in our ability to close more than 4,700 homes in 2017 >b and believe 2017 basic EPS will be in the range of $4.00 to $4.50 per share,” Lipar concluded.

bolding emphasis is mine

more here…

looks/sounds promising

https://finance.yahoo.com/news/lgi-homes-inc-reports-first-1…

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And they beat on earnings
And they beat on revenues,
And margins were up,
And average sales price was way up,
And…etc etc.

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As inventory catches up to this demand over the next few months

In other words they are selling them faster than they can deliver them.

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Looks very, very good.

After all the back and forth on the LGIH thread, I added yesterday. I tried to buy more pre-market today but my broker was not accepting online orders for LGIH. So, I called. Used Google Voice. Connection from Philippines good enough to work on second try. Entered an order, semi-blind. I don’t think I have called in an order since…, early 90’s???

KC

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And they beat on earnings
And they beat on revenues,
And margins were up,
And average sales price was way up,
And…etc etc

Yaay !

:slight_smile:

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I am grateful to everyone here… especially you, Saul… who presented and argued the case for LGIH over the past week. I rethought my sale of the position and bought it back a few days ago. Lucky me.

Thanks again for your thoughtful and thorough presentation of the facts.

Vivienne

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Just keep in mind KC that some brokers charge hefty fees for trades placed over phones.

On other topics, my wife is just starting to invest and yesterday I recommended her to buy into LGIH :). I already have a decent sized position and don’t intend to increase it since I scooped some up earlier this year.

Thanks to everyone on Saul’s board.

Ani.

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Can we come back to reality for a second. Was this a fantastic quarter? Yes. Is the stock up 10% today? Yes. But before we start declaring our victory can we just point out that LGIH is only up a measly 2% in the last 5 trading days. Part of the reason today was so explosive was due to the declines in stock price in the last week due to the weak closings. We still have a ways to go and it’s a great start but I feel like people are preemptively declaring victory on LGIH.

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In other words they are selling them faster than they can deliver them.

This, I believe is the fundamental problem faced by LGIH.

Why can’t they deliver? As previously discussed, they have no shortage of lot inventory. I refrained from the pile-of-debt v. acquisition of land discussion, I’ll just leave it that IMO, they have no choice but to acquire land in booming markets when it’s available. Failure to do so would be suicidal.

So, land is not a current problem. Home building materials may be undergoing a price escalation, but that is not going to hinder their ability to deliver completed homes. There are no significant shortages and they can roll most if not all the construction materials price increases into the ASP of a new home.

Skilled, experienced labor is the rub. In that the US has pretty much eliminated most craft/trade skills education, the only large skilled labor pool is foreign born; primarily Mexican (go see who’s standing around your Home Depot is you doubt me). Mexicans who entered the country illegally have been returning to Mexico at a faster rate than they have been entering the US for 8 years (despite what you might have heard at a campaign rally). The rate has accelerated considerably since the election.

Maybe, if we build a wall, it will make it harder to leave the country and slow the exodus of skilled construction labor.

If you search out LGIH reviews (I did) you’ll find that most complaints are with respect to workmanship issues. The next most complaints are with respect to providing the warranty service they promise in writing.

These problems are both indicative of a shortage of skilled labor.

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We still have a ways to go and it’s a great start but I feel like people are preemptively declaring victory on LGIH.

I agree with this statement. I sold out of my position last week and do not regret it one bit. Today’s earnings release and resulting price increase would not have moved the needle very much for me,-ie- the share price is simply back up to where it was a short time ago. I was happy to sell my shares and invest the proceeds in other companies whose share prices are moving up. Add to that that it still remains to be seen what will happen with LGIH the rest of the year and, for me, it was a good decision to close out my position.

I do wish all of those still in LGIH the best of luck. Maybe I’ll get back in at some point, maybe not. But I do think that brennanadler makes a good point.

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We still have a ways to go and it’s a great start but I feel like people are preemptively declaring victory on LGIH.

I don’t think it’s that people are declaring victory now, people (at least speaking for myself) are more confident in future victory with LGIH now.

I was one that definitely was questioning management and their 2017 stated goal of closing 4700 homes. Chris’ analysis showing a reasonable path to 4700 homes made me more comfortable with holding my position, and of course Saul’s comments that revenue and earnings will still be there (even if homes closed missed and as demonstrated in Q1) because of increased ASP, also made sense.

I didn’t sell anything, but was waiting for the announcement today to see what management said about expected home closings for 2017 (as that was my concern). I liked what I read, and believe the reason they gave for the slow start to closings for the year. They think the back half of the year will be heavily loaded, and I feel if that happens, we’re going to see some large increases in REVS and EPS at that time that I believe will move the stock price up significantly (barring any large interest rate increases or overall market corrections before then).

So what does all this mean? I bought more today that I think will be more valuable down the road than what I paid. I’ve gotten in the habit of not making buys/sells for the week or so BEFORE earnings, but I have been buying/selling AFTER earnings recently, usually with good results (at least short term).

Here’s to continued success for all on this board who discuss and share their views and experiences with others in hopes of improving everyone’s chances of success.

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“We still have a ways to go and it’s a great start but I feel like people are preemptively declaring victory on LGIH.”

I agree. When I bring up the one and 3 year price performance of LGIH vs my other major holdings of Facebook, Broadcom, PayCom, and Amazon, LGIH is still the decided lagger of the group.

Jim

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can we just point out that LGIH is only up a measly 2% in the last 5 trading days.

When I bring up the one and 3 year price performance of LGIH vs my other major holdings of Facebook, Broadcom, PayCom, and Amazon, LGIH is still the decided lagger of the group

But since January 2016 its up 64 %

Shareholders have made money from LGIH stock . Including myself. Isn’t that why we invest. To make money.

So whats not to like.

Frank

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Saul: In other words they are selling them faster than they can deliver them.

brittlerock: This, I believe is the fundamental problem faced by LGIH.

Why can’t they deliver?

Management directly addressed this issue in the earnings call Q&A.

https://seekingalpha.com/article/4071286-lgi-homes-lgih-ceo-…

In short: LGIH management didn’t expect to be quite so successful (my interpretation … actual statement: they didn’t start enough homes). They acknowledged the problem, they accepted the mistakes without hesitation, and they made it clear they are working in improvements moving forward. They also discuss the overall industry labor shortage and gave assurance it won’t be a problem as they have construction planned out to account for the inventory backlog.

Only time will tell how they handle this moving forward but for now I am about as satisfied as is possible with their answers on this topic.

Here is the beginning of the discussion, follow-on questions go deeper into some details.

(side note: I suspect there are some transcript errors)

Nishu Sood

Thanks. So Eric, you folks have had a month or two even here and there in your history where you’ve had inventory fall a little bit, impact closings and then the issue resolved itself usually pretty quickly. This is the most persistent inventory problem in my recollection that you have had since you’ve been a public company.

What is the real cause of that? I mean, if I look back over time, your discussions of labor are far less frequent, I mean, if at all I think compared to most builders out there, weather has not been a factor and all of a sudden here at the beginning of 1Q, at the beginning of '17 it just seems to have become a persistent problem across more than a quarter.

So, if it’s possible, what is driving that at the end of the day?

Eric Lipar

Yes, sure. I think this year it was a combination of a few different factors. And you’re correct. And we have room to improve on that. A couple of different things. One is we just flat out did not start enough houses, we dropped the ball, in some cases we just didn’t start enough houses to build up the inventory for the first quarter. Also, construction times we just had the question the construction times.

We got room for improvement nationwide and reducing our construction times. The construction times in some of our newer markets are not where we want them today. And also from a development standpoint, getting plans and cities to approve our plans and getting new development sections on the ground especially in the Dallas Fort Worth market which is where we’re really short of inventory and we closed out two separate communities. That had an influence.

And the obviously we don’t want to not say sales, were an issue either, the inventory was predominant reason we were last year-over-year on closings, but we can only use more sales. I mean, January and we talked about this on last call, January sales were down year-over-year but February, March and April have been like I said over 500 net sales a month.

So, I think is a combination of factors and issue, but anchor inventory is going to be in line and we’re not going to be talking about inventory any more over the next couple of quarters.

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What’s been happening with mortgage interest rates? My guess is that they’ve been going up a bit lately, with the recent small Fed rate hikes. I think that would tend to encourage home buying, in order to get in ahead of upcoming rate hikes.

The post about skilled labor leads me to wonder which home builders are noted for their quality, and then see which of those are good investments.

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Ed,
The only way to do this is based on the amount of time a builder has been an area. For example, where I live Quadrant Homes (used to be Weyerhaeuser) has been here forever. It is unlikely that they will be experiencing labor shortages because they are well established with all the sub contractors (subs) in the area. They are well known by every carpenter, electrician, plumber, mason, sheet rocker, painter, landscaper, etc. in the Puget Sound region. They have a great reputation for paying competitive rates or better, on-time payment, reasonable scheduling and so forth. There is not a sub in the region who wouldn’t go out of their way to book a job with Quadrant.

But new builders with no track record (e.g. LGIH) will have trouble. They are an unknown quantity as far as the subs are concerned. At present, due to the labor shortage most subs are fully booked. That means LGIH has to turn to independent subs. Some of them will provide high quality execution of their specialty in an expedient and reliable manner. Some of them won’t. LGIH will have to find out who they can depend on by trial and error.

OTH, I imagine LGIH will have less trouble finding subs in Dallas/Ft. Worth, their home base. Assuming they have a good reputation with the construction community, they should be a known home builder with well established relationships with many of the established subs in that area. The problem they had in Texas was just a planning snafu by failing to get sufficient homes started in time for the primary selling season (upon us now).

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