Homebuilder NVR (NYSE: NVR) met Wall Street’s revenue expectations in Q4 CY2024, with sales up 14.3% year on year to $2.78 billion. Its GAAP profit of $139.93 per share was 6.8% above analysts’ consensus estimates.

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Company Overview

Known for its unique land acquisition strategy, NVR (NYSE: NVR) is a respected homebuilder and mortgage company in the United States.

Home Builders

Traditionally, homebuilders have built competitive advantages with economies of scale that lead to advantaged purchasing and brand recognition among consumers. Aesthetic trends have always been important in the space, but more recently, energy efficiency and conservation are driving innovation. However, these companies are still at the whim of the macro, specifically interest rates that heavily impact new and existing home sales. In fact, homebuilders are one of the most cyclical subsectors within industrials.

Sales Growth

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Regrettably, NVR’s sales grew at a mediocre 7.2% compounded annual growth rate over the last five years. This fell short of our benchmark for the industrials sector and is a tough starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. NVR’s recent history shows its demand slowed as its revenue was flat over the last two years.

We can dig further into the company’s revenue dynamics by analyzing its backlog, or the value of its outstanding orders that have not yet been executed or delivered. NVR’s backlog reached $4.79 billion in the latest quarter and was flat over the last two years. Because this number is in line with its revenue growth, we can see the company effectively balanced its new order intake and fulfillment processes.

This quarter, NVR’s year-on-year revenue growth was 14.3%, and its $2.78 billion of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 6.8% over the next 12 months. While this projection indicates its newer products and services will fuel better top-line performance, it is still below average for the sector.

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Operating Margin

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

NVR has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 18.5%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Analyzing the trend in its profitability, NVR’s operating margin rose by 4.4 percentage points over the last five years, showing its efficiency has improved.

This quarter, NVR generated an operating profit margin of 19.2%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Earnings Per Share

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

NVR’s EPS grew at an astounding 18.1% compounded annual growth rate over the last five years, higher than its 7.2% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into NVR’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, NVR’s operating margin was flat this quarter but expanded by 4.4 percentage points over the last five years. On top of that, its share count shrank by 17.8%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For NVR, its two-year annual EPS growth of 1.5% was lower than its five-year trend. We hope its growth can accelerate in the future.

In Q4, NVR reported EPS at $139.93, up from $121.58 in the same quarter last year. This print beat analysts’ estimates by 6.8%. Over the next 12 months, Wall Street expects NVR’s full-year EPS of $507.51 to stay about the same.

Key Takeaways from NVR’s Q4 Results

It was encouraging to see NVR beat analysts’ EPS expectations this quarter. On the other hand, its revenue was only in line and worse yet, backlog missed significantly. Overall, this was a weaker quarter. The stock closed down 3.8% to $8,064 per share after the earnings report today.

Big picture, is NVR a buy here and now? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.