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Anatomy of Success: LGI Homes (LGIH)

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Zacks Rank #1 (Strong Buy) stocks have a long and demonstrable history of outperforming the market over a 1-3 month time period.  This unique ranking is only bestowed upon the top 5% of all stocks within the Zacks Rank universe.  Not only does this ranking system help identify the most elite stocks, but it also enables you to stay in a particular company while it continues to gain in value beyond the three month investment horizon.  

The example below illustrates how by following the ranking system, an investor could have realized a +100% gain in just over five months’ time.  

Example LGI Homes (LGIH - Free Report)

LGI Homes (LGIH - Free Report) is engaged in the design and construction of entry-level homes across Texas, Arizona, Florida and Georgia. The company focuses on converting renters of apartments and single-family homes into homeowners by offering homes at affordable locations.

On July 14th, LGIH was added to the Zacks Rank #1 (Strong Buy) list just after the company announced that its June unit closing rates increased by +76% YoY.  June marked the second consecutive month that unit closing rates outpaced all expectations.  This surge in closings caused several coverage analysts to increase full-year unit closings, and FY 17 EPS guidance.  The stock price closed at $37.14 on July 14th.

Then on August 8th, LGIH announced Q2 17 earnings where they beat both top and bottom line expectations for the 5th consecutive quarter.  Management posted YoY gains in net income +55.9%, home sales revenues +45.6%, home closings +34%, and average home sales price increase by +8.7%. Almost 2 weeks later Hurricane Harvey wreaked havoc upon Texas and several southern states, but in the first week of September the company reported that August closings rose by +56% YoY, easily beating street expectations.  The combination of the strong earnings report and August closing numbers caused analysts to increase FY 17 guidance once again.  Three months (October 13th) after LGIH was added to the Zacks Rank #1 Strong Buy list, the stock price closed at $53.99 a +45.4% gain.  

On November 7th, management announced Q3 17 results, where they beat both top and bottom line estimates for the 6th consecutive quarter as it posted YoY gains in the following; net income +73%, home sales revenues +69.2%, home closings +64.4%, and average home sales prices improved by +2.9%.  Due to the continued strong performance, management increased its FY 17 guidance for both home closings, and EPS estimates.  Then in early December, the company reported that closing rates continued to improve, as November closing rates were up +69% YoY, beating all expectations.  By the close of the bell on December 29th, the stock price was at $75.03, a +102% increase from when it first became a Zacks Rank #1.

The table below shows the price performance of LGIH (in green), and the 12 month forward looking EPS estimate (in red) from when it became a Zacks Rank #1 till the close of the bell December 29th.

Overall, by utilizing the Zacks Ranking system, you can easily identify the elite stocks which are best positioned to beat the market on a consistent basis, and how to stay in those top stocks as they continue to grow.

Zacks Editor-in-Chief Goes "All In" on This Stock

Full disclosure, Kevin Matras now has more of his own money in one particular stock than in any other. He believes in its short-term profit potential and also in its prospects to more than double by 2019. Today he reveals and explains his surprising move in a new Special Report.

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