TRI Pointe Group, Inc.’s (TPH - Free Report) shares have been riding high of late, gaining 24.7% over the past year compared with the industry’s 3.9% growth.
Indeed, the overall outlook for the U.S. housing industry remains positive, with a healthy economy and strong job market aiding the demand side of the equation. However, the limited supply of homes for sale, rising rates and higher material prices have raised concerns among investors regarding certain U.S. sectors, particularly construction. Evidently, share price performance has not been an encouraging one for the homebuilding industry so far this year. However, despite belonging to the same industry, TRI Pointe has managed to navigate smoothly. The industry has declined more than 17%, whereas TRI Pointe registered only 6.2% fall year to date.
This Irvine, CA-based homebuilder, which is mainly involved in the design, construction and sale of single-family homes, continues to exhibit strength given strong order growth and high backlog.
Moreover, the Zacks Consensus Estimate for current-year earnings has increased 0.5% in the past 60 days, thus reflecting optimism in the stock’s prospects and substantiating its Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
What Makes TRI Pointe a Solid Pick?
Solid Order Growth and High Backlog: TRI Pointe delivered its sixth consecutive quarter of double-digit order growth in the first quarter of 2018, given continued strength in absorption paces. California continues to be a major contributor to its growth. Given strong order growth and high backlog, the company is well positioned for robust top and bottom-line growth in 2018.
In the last reported quarter, order value increased 29% year over year. Similarly, order units grew 15%. Solid delivery growth and strong price appreciation led to 48.6% growth in homebuilding revenues. Order growth was driven by 12% increase in absorptions and a 3% increase in community count. Meanwhile, as of Mar 31, 2018, backlog was up 39% (in value) on a 24% increase in backlog units.
Additionally, TRI Pointe is blessed with a massive California presence where it continues to register strong demand. This is helping the company to offset the industry’s limited supply scenario, allowing for relatively strong pricing power. This is evident from its homebuilding gross margin that expanded 390 basis points year over year in the last reported quarter.
Solid Growth Prospects: TRI Pointe reported robust first-quarter results, with the bottom line increasing 460% year over year to 28 cents per share. The quarter benefited from solid top-line growth, significant increases in unit deliveries, average sales prices and significant expansion of gross margin.
TRI Pointe has solid growth prospects, as is evident from the Zacks Consensus Estimate for earnings of $1.86 per share for the current year, which is expected to grow 31% year over year. Meanwhile, the company’s sales are expected to increase 17.1% in 2018. Meanwhile, the company’s 2019 earnings are expected to increase 14.3% on 12% growth in revenues.
The company has a three-five year expected EPS growth rate of 11.7%.
Valuation Looks Rational: Given homebuilders’ asset-driven nature, it makes sense to value companies based on their price-to-book (P/B) ratio. The company currently has a trailing 12-month P/B ratio of 1.3. This is lower compared with the current P/B for the industry and S&P 500 that are pegged at 1.4 and 3.9, respectively. Its lower-than-market positioning indicates that there is room for an upside in the quarters ahead, substantiating its Value Score of B.
Solid VGM Score: The company has an impressive VGM Score of B. Our VGM Score identifies stocks that have the most attractive value, growth and momentum characteristics. In fact, our research shows that stocks with VGM Scores of A or B when combined with a Zacks Rank #1 or 2 offer solid investment choices.
Superior ROE: TRI Pointe’s return on equity (ROE) supports growth potential. Its ROE of 13.6% compares favorably with the industry’s average of 12.4%, implying that it is efficient in using its shareholders’ funds.
Other Stocks to Consider
Other top-ranked stocks in the same space are Lennar Corporation (LEN - Free Report) , M.D.C. Holdings, Inc. (MDC - Free Report) and Aegion Corporation (AEGN - Free Report) .
Lennar sports a Zacks Rank #1 and its fiscal 2018 earnings are expected to grow 37.5%.
M.D.C. Holdings carries a Zacks Rank #2 and its earnings for the current year are likely to increase 32.6%.
Aegion is also a Zacks Rank #2 stock and its earnings for the current year are expected to grow 34%.
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