Way back in the day, like a whole year ago, LGIH was a top holding. Lots of profit was made and Saul sold near the top, as is usually his way.
We learned lots about the company, and Monkey wonders if we might not put that old know-how back to work. Why?
Easiest answer is that the stock has crumbled, and its p/e is now 6.7. Yes interest rates are rising, but might it be way undervalued nonetheless, given that the housing market is still strong, especially in Texas?
Some of y’all have stayed in and have continued to follow the story: what’s the word? Is LGIH a bunch of golden bananas ready to be picked again? Or is it more like a trojan gift horse?
It was because LGIH was growing fast and had a ridiculously low p/e that we made lots of profit the first time around. Why would we not investigate the company again, given how much we already know about it?
And if it’s not worth it, why not? What p/e level would get us interested again? We’re near LGIH’s bottom historically.
Here’s an article that puts the homebuilding industry into context:
I am following LGIH closely and have an in-the-red position built subsequent to bailing out at $80 around March. I am posting about LGIH on https://discussion.fool.com/4056/pb-investing-strategies-121819…. That is a paid board. My latest thread begins at #673.
I show current price at $37.86 and p/e at 6.9 and looking forward to Q3 expect p/e 6.9. 2018 forecast earnings yields 5.9 forward p/e, and 2019 a 5.0 forward p/e. Earnings due 11/6. In the meantime, earnings for PHM 10/23 BMO, NVR 10/23 AMC, MHO 10/24 AMC.
My concern is that LGIH is lagging on current active selling communities as far as meeting 2018 target. Buying Wynn Homes assets in North Carolina may be part of that.
I sold some back in the spring in my “try to act like Saul portfolio” (not surprisingly worked pretty well), hung onto the rest because I thought prospects looked good. Still hanging on because, although I expect the housing market to slow with interest rates rising, I think it is already baked into the stock price. As far as LGIH versus other builders, I like the fact that they are mostly entry level homes which I would think would hold up better in a rising rate environment, keeping prices down…
Either way, it is tough for me to sell now at this price. It is hard to believe that the three year return from here won’t be good. (I know, not the normal thought on this board)
Randy
Long LGIH and many of the more typical high growth stocks on this board)…
I have a couple of businesses in Phoenix and can tell you that they have overbuilt apartment buildings in and around Central Phoenix.
I have no idea if that cooralates to the housing markets in and around Phoenix, but I’m not surprised at all by the sell off in LGIH.
I was also a seller of the stock, not at the top, but I saw earlier then the top that the overbuilding going on, along with a very tough labor market for the construction industry.
We just finished a project in Phoenix and my contractor is busy, but he cannot find labor. There just aren’t enough workers.
Those were my two reasons for exiting the stock when I did. Since those reasons haven’t changed, I’m not entering even at this possible discount price.
"Among our 330 million residents are 86 million people between 24 and 42 years old, with their group peak population year at 27 years old, currently. They marry, on average, in their late twenties and early thirties and have their children between the ages of 28-40. Their full force is not yet into the housing start data. At 5% mortgage rates and with today’s level of affordability, history shows that there is nothing in the way from having a home building boom over the next ten years to satisfy this demographic demand.
We believe we could repeat the peak housing starts of the prior decades and the market share of homes built will disproportionately flow toward the large, publicly-traded home builders like NVR (NVR) and Lennar (LEN). While we have temporary softness (slower growth) in housing starts and permits, long-duration investors would be wise to catch this potential boom at prices which could very well represent John Templeton’s “point of maximum pessimism.”