Opened a position in D R Horton Homebuilders (DHI) last week- largest homebuilder in the US currently. Expecting continued boom in housing for the next few years while interest rates are low, and this company has excellent financials. They build starter and some "luxury" homes across the US.
https://finviz.com/quote.ashx?t=DHI
Things I like-
1. Low P/E relative to the market- 11.0 P/E, 8.0 Forward looking P/E.
2. Room to grow on a low P/E stock- 5 year anticipated EPS growth by analysts is 15.8%. For a company trading at such a low multiple, this looks like a huge bargain. Their prior 5 year EPS growth is 25%. No reason to doubt they can't pull off this kind of growth the next few years with low interest rates creating perfect storm for homebuyers. Even if growth projections don't reach the consensus estimates (say it's only 10% EPS growth the next few years), there is solid margin of safety here given the discounted valuation.
3. Excellent financial track record:
https://www.macrotrends.net/stocks/c...horton/revenue
Beautiful revenue growth over time.
https://www.macrotrends.net/stocks/c...orton/pe-ratio
Beautiful corresponding earnings growth.
https://www.macrotrends.net/stocks/c...rton/price-fcf
3+ year trend of Free Cash Flow growth.
In combination with a reasonable P/E and reasonable 3-5 year projections, this is the trifecta for me- growing earnings, growing revenues, growing cash flows that can be put back into the business or paid out to shareholders. This management team is doing things the right way if all of these things are moving in the same direction. Speaking of payouts to shareholders...
3. History of Dividend Growth for shareholders. DHI is currently a "dividend challenger"- meaning they've increased dividend annually for at least 5 years. Annualized dividend growth rate for the past 5 years is a massive 25%. This perfectly corresponds to their earnings growth as well. While they don't pay out the highest yield (currently 1.14%), this kind of high DGR is what you want to see if you are aiming for big yield on cost in the future.
4. Gross margins of 24%, Operating margin >10%. Home building is a capital intensive business but they still manage to pull off a solid operating margin. Toll brothers, a competitor, has gross margins of 20% and operating margins of 6%.
5. Low debt. Current assets are 4-5x more than total current debt (ST and LT).
Current plan is to sit on this stock for at least 1-2 years and re-evaluate when interest rates start to rise.