been wanting to get in for a while. $60 looks like a good entry point. Any cautions about getting in now? Thanks, Tom
You might want to read over Saul’s reasons for reducing his LGIH position (look for a post in the last few days of January)
thanks Banj, I looked but could not find it. Does anyone know how to search the boards using Google. I used to have it written down but can’t find it.
Here were Saul’s most recent thoughts on LGIH that were in his last summary (available in the additional info on the right side of any post), this was found in post #36215:
LGI Homes is now one of these small “one percent plus” positions and is down from a 5.5% position a month ago. For those not familiar with it, LGIH is a small home builder that specializes to selling first homes to apartment dwellers. It started 2017 at $28.75 and is now at $71.2, which is up 148%. I had bought a bunch more early on, when it got as low as $19.50. My purchases at $20 are up over 250%.
Why is my position so much smaller than it was? Because I’ve been gradually tapering my position. Why is that? I realize that there is a nationwide shortage of homes now, and they are selling them as fast as they can build them, but this is a cyclical industry that will eventually get overbuilt. But that was true a year ago too! What makes the difference? The difference is that it has already has had that huge run that I was expecting. I don’t see it happening again to the same extent. The PE is much higher now, and I feel that to keep growing at 50% per year now, they have to grow their number of active communities by 50%, compounded, each year, as well as replacing the ones that sell out. That just gets more and more impractical. The rate of growth will slow down.
On the other hand, I’m not in any hurry, and am simply selling shares as they become long term. Look, I know that they will have great comparisons in the December and March quarters! Great comparisons! I just want to re-deploy the money into situations that I can imagine growing longer and faster.
I have done some more thinking about LGIH and have two posts started, but not time to finish. I’m looking for $5.07 earnings or a p/e less than 12. I have some concerns about Q1 because of the static number of communities and the number of communities they show as “last chance” and “sold out”. I don’t have the numbers in front of me now, but I’m afraid they depleted inventory in Q4.
I am not sure what negative impact, if any, the new tax rate will have on Q4 and FY 17 earnings. Next year it will be positive. I couldn’t figure out where in the financials I should look. Haven’t had time…
Bottom line is we don’t know what multiple the market will give their earnings. If the market feels as Saul does, that the growth rate will decline and the housing market will cool…, why not a 10 p/e? The feared headwinds are affordability and inflated building costs.
LGIH is still 9% of my IRA, over 5% of total portfolio’s. I traded in and out this last week (selling, adding back a portion, sold). Last sale was to buy more ANET.
I think there is 50% upside from here based on potential earnings for 2018. But there are macro factors and market sentiment. My top four IRA holdings are ANET, NVDA, SQ and LGIH ranging from 12.4% down to 9.0%. I think I will add a percent or two to LGIH next week, but not sure.
so essentially the rationale is most of the upside has happened, and given its a cyclical industry, time to get out.
I was thinking of it from the perspective that Millennials are starting their house buying and LGIH caters to that entry level market. Tom