Shares of TRI Pointe Group, Inc. (TPH - Free Report) have gained 28.1% over the last three months, substantially outperforming the 18.7% growth of its industry. Additionally, this Irvine, CA-based homebuilder, which mainly involves in the design, construction and sale of single-family homes, outperformed the industry in each of the four-week, 12-week and 52-week time frames.
Moreover, the Zacks Consensus Estimate for current-year’s earnings has increased 2.3% in the last 60 days, thus reflecting optimism in the stock’s prospects and substantiating its Zacks Rank #1 (Strong Buy). Meanwhile, earnings estimates have also moved north by 5.4% for 2018.
You can see the complete list of today’s Zacks #1 Rank stocks here.
What Makes TRI Pointe a Solid Pick?
Stellar Third-Quarter Performance: Recently, the company came up with robust quarterly results with both top and bottom lines exceeding the Zacks Consensus Estimates by 1.2% and 6.7%, respectively. Also, the company’s earnings and revenues improved 118.2% and 23.2%, respectively, driven by 9% growth in home deliveries and 3% rise in average sales price of homes in the quarter.
Importantly, the company’s backlog of $1.5 billion at the quarter end increased 56% from $950.2 million a year ago. Its new home orders were also up 36% year over year in the quarter on a 9% increase in average selling communities.
TRI Pointe remains well positioned to outperform its peers through better absorptions and deliveries from the higher-margin California market.
Solid Estimated EPS Growth: The homebuilder’s current-quarter earnings are expected to increase 77.8% year over year, comfortably outpacing the industry’s average projected growth of 16.7%. The company’s projected sales growth is a healthy 40.3%, higher than the industry average of 3.2%.
Meanwhile, the company’s EPS growth is expected to increase 12.5% for the current year on 15.8% growth in revenues.
In fact, for the company, nothing is more important than earnings growth, as surging profit levels are often an indication of strong prospects (and stock price gains).
Reasonably Valued Stock: Because of homebuilders’ asset-driven nature, it makes sense to value them based on price-to-book ratio. The company currently has a trailing 12-month P/B ratio of 1.44. This is quite cheap compared with the industry as well as the market at large, as the current P/B for the industry and S&P 500 is at 1.93 and 3.64, respectively. Its lower-than-market positioning calls for an upside in the quarters ahead.
Solid Industry Fundamental: Sales of new U.S. single-family homes rose in September, hitting the highest level in nearly 10 years after reporting sales slump in recent months. Per the recently released report by the Commerce Department, new home sales surged 18.9% to a seasonally adjusted annual rate of 667,000 units in September amid an increase in all four regions. That was the highest level since October 2007 and followed August’s upwardly revised sales pace of 561,000 units.
The housing/homebuilding industry has been riding high on steady job and wage growth, historically low mortgage rates and rapidly increasing household formation. The positive momentum is evident from the robust Zacks Industry Rank (Top 26% out of 256 industries).
Consequently, homebuilding companies like TRI Pointe, KB Home (KBH - Free Report) , D.R. Horton, Inc. (DHI - Free Report) , PulteGroup Inc. (PHM - Free Report) and others are expected to gain from such positive industry fundamentals and higher demand.
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