KC, thanks for this thoughtful post and as long as you are checking certain data, please keep us informed and challenge us to refute your conclusions.
Kevin68 posted this link recently…
http://seekingalpha.com/article/3818416-5-unrelated-stocks-c…
and I commented as such…
This was interesting.
Good economy and low unemployment levels point out that home sales is not in danger from a recession. In fact, LGI is expanding into 4 out of the 10 most popular cities where millennials are moving into
LGIH’s tactic is to stick to lower cost areas (Tx, NC, Washington state, FL, GA). Some of those top 10 cities are very pricy (DC, NY, Boston, SF, Seattle.)
So that leaves Raleigh, Minneapolis, Austin, maybe Denver, Maybe San Jose,
- so PuddinHead is confident that are still a number of similar places for expansion (but at least one of the big builders is also going after the millennial crowd with tech oriented homes).
http://www.businessinsider.com/the-big-cities-where-millenia……
The key risks of investing in LGI are that it continues to rely on Texas market (53% of revenue) and it uses a decent amount of financial leverage. Many investors are concerned about the health of Texas job market due to the collapse of oil prices. Although there has been a net gain of jobs in Texas, this remains a concern. The other thing is that LGI uses a decent proportion of debt to finance new land purchases.
You said this
I’ll check the land inventory every quarter. If it begins to look like stage 5, I would reduce exposure. Likewise if inventory stagnates, because you can’t build increasing numbers of houses without increasing numbers of lots.
The danger is they build land inventory, which seems good, but then can’t sell more houses, so actual sales trends are the primary indicators.
Yes, the key is to get into growth stocks before the masses pile in and to get out before they bail. Small growth stocks will usually be more heavily punished on a market down trend, so we need to distinguish between that and “the end” for a particular stock. Certainly a stock like DDD was at the top of the initial hype curve when its bubble burst. It may be done forever or it may someday have actual earnings that would encourage us to start buying.
P.S. Add some white space between your paragraphs next time to increase readability 