What a brutal six months it’s been for NVR. The stock has dropped 26% and now trades at $7,151, rattling many shareholders. This may have investors wondering how to approach the situation.
Is there a buying opportunity in NVR, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
Even with the cheaper entry price, we're sitting this one out for now. Here are three reasons why NVR doesn't excite us and a stock we'd rather own.
Why Is NVR Not Exciting?
Known for its unique land acquisition strategy, NVR (NYSE: NVR) is a respected homebuilder and mortgage company in the United States.
1. Backlog Is Unchanged, Sales Pipeline Stalls
Investors interested in Home Builders companies should track backlog in addition to reported revenue. This metric shows the value of outstanding orders that have not yet been executed or delivered, giving visibility into NVR’s future revenue streams.
Over the last two years, NVR failed to grow its backlog, which came in at $4.79 billion in the latest quarter. This performance was underwhelming and shows the company faced challenges in winning new orders. It also suggests there may be increasing competition or market saturation. 
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect NVR’s revenue to rise by 2.4%. Although this projection implies its newer products and services will catalyze better top-line performance, it is still below average for the sector.
3. Recent EPS Growth Below Our Standards
While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.
NVR’s EPS grew at a weak 1.5% compounded annual growth rate over the last two years. On the bright side, this performance was higher than its flat revenue and tells us management responded to softer demand by adapting its cost structure.
Final Judgment
NVR’s business quality ultimately falls short of our standards. After the recent drawdown, the stock trades at 14× forward price-to-earnings (or $7,151 per share). Beauty is in the eye of the beholder, but our analysis shows the upside isn’t great compared to the potential downside. We're fairly confident there are better stocks to buy right now. We’d recommend looking at one of our top software and edge computing picks.
Stocks We Would Buy Instead of NVR
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