Despite macroeconomic uncertainties, new home sales are thriving, thanks to low mortgage rates and strong housing demand to encourage homeownership. Given the industry’s growth prospects, fundamentally strong homebuilder stocks Five Point Holdings, LLC (FPH), M/I Homes, Inc. (MHO), and Sekisui House, Ltd. (SKHSY) might be worth buying.
Before delving deeper into their fundamentals, let’s discuss what’s happening in the homebuilder industry.
Homebuilder confidence rose in January as mortgage rates continued to fall, according to the National Association of Home Builders/Wells Fargo Housing Market Index, which was released recently. Builder confidence in the market for newly-built single-family homes exceeded forecasts, rising seven points to 44 on the index.
Robert Dietz, NAHB chief economist, said, “The housing market appears to have passed peak mortgage rates for this cycle, and this should help to spur home buyer demand in the coming months.”
Moreover, the global construction market is expected to grow at a CAGR of 6.6% until 2032. The global construction industry is expected to expand as a result of increased construction activity, green building adoption, mechanization, rapid urbanization, population growth, and an increase in both residential and commercial buildings.
Investors’ interest in homebuilders’ stocks is evident from the SPDR Homebuilders ETF’s (XHB) 32.7% returns over the past three months and 14.4% over the past six months.
Considering these conducive trends, let’s look at the fundamentals of the three Homebuilders stocks, starting with number three.
Stock #3: Five Point Holdings, LLC (FPH)
FPH designs and develops large mixed-use planned communities that combine residential, commercial, retail, educational, and recreational elements with public amenities, including civic areas for parks and open space.
FPH’s trailing-12-month Price/Sales of 1.04x is 77.6% lower than the industry average of 4.64x. Its trailing-12-month Price/Book of 0.33x is 78.1% lower than the industry average of 35.36x.
FPH’s trailing-12-month ROCE of 8.55% is175.3% higher than the industry average of 3.10%. Its 1.87% trailing-12-month ROTA is 34.3% higher than the 1.39% industry average.
FPH’s total revenues for the fiscal fourth quarter that ended on December 31, 2023, amounted to $118.76 million. The company’s net income and EPS came in at $29.76 million and $0.39, increased 163.9% and 160% year-over-year, respectively. Moreover, during the same period, land sales increased significantly to $100.11 million.
FPH’s shares have gained 36.7% over past three months to close the last trading session at $3.24.
FPH’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
FPH has a B grade for Growth and Quality. Within the B-rated Homebuilders industry, it is ranked #3 out of 23 stocks. To see additional POWR Ratings for Value Momentum, Sentiment and Stability for FPH, click here.
Stock #2: M/I Homes, Inc. (MHO)
MHO and its subsidiaries operate as builders of single-family homes in Ohio, Indiana, Illinois, Minnesota, Michigan, Florida, Texas, North Carolina, and Tennessee. The company operates through the Northern Homebuilding, Southern Homebuilding, and Financial Services segments.
MHO’s forward non-GAAP P/E of 7.90x is 49.4% lower than the industry average of 15.63x. Its forward EV/EBIT of 6.38x is 54.2% lower than the industry average of 13.91x.
MHO’s trailing-12-month levered FCF margin of 15.93% is 197.3% higher than the industry average of 5.36%. Its trailing-12-month net income margin of 11.47% is 144.7% higher than the industry average of 4.69%.
For the third quarter ended September 30, 2023, MHO’s total revenues increased 3.3% year-over-year to $1.05 million. Its operating income rose 2.9% over the prior-year quarter to $172.13 million. In addition, the company’s net income and EPS stood at $139.02 million and $4.82, up 5.6% and 3.2% year-over-year, respectively.
Analysts expect MHO’s revenue to come in at $4.36 billion for the year ending December 2024, increased 2.7% year-over-year. Its EPS is expected to come in at $16.20 for the same period. It surpassed the EPS estimates in each of the trailing four quarters. The stock has gained 134.7% over the past year to close the last trading session at $130.75.
It’s no surprise that MHO has an overall B rating, equating to a Buy in our POWR Ratings system. It has an A grade for Momentum and a B for Value. It is ranked #2 in the same industry.
Beyond what is stated above, we’ve also rated MHO for Growth, Stability, Sentiment and Quality. Get all MHO ratings here.
Stock #1: Sekisui House, Ltd. (SKHSY)
Headquartered in Osaka, Japan, SKHSY designs, constructs, and contracts built-to-order detached houses in Japan and internationally. The company operates through Custom Detached Houses, Rental Housing, Architectural/Civil Engineering, Remodeling, Real Estate Management Fees, Houses For Sale, Condominiums, Urban Redevelopment, and Overseas segments.
SKHSY’ forward EV/Sales of 0.91x is 24.8% lower than the industry average of 1.22x. Its forward EV/EBIT of 10.51x is 24.4% lower than the industry average of 13.91x.
SKHSY’ trailing-12-month net income margin of 5.91% is 26.1% higher than the 4.69% industry average. Its trailing-12-month ROTA of 5.15% is 27.4% higher than the 4.04% industry average.
For the nine months that ended on October 31, 2023, SKHSY’s net sales increased 2.8% year-over-year to ¥2.19 trillion ($15.05 billion). Its operating profit amounted to ¥186.69 billion ($1.28 billion). Additionally, its profit attributable to owners of parent and profit per share amounted to ¥141.89 billion ($974.78 million) and ¥216.23, respectively.
Also, as of October 31, 2023, its total assets stood at ¥3.43 trillion ($22.19 billion), compared to $3.01 trillion ($20.68 billion) as of January 31, 2023.
The consensus revenue estimate of $20.90 billion for the year ending January 2024 reflects a 136.3% rise year-over-year. The stock has gained 21.5% over the past year to close the last trading session at $22.86.
SKHSY has an overall A rating, equating to a Strong Buy in our POWR Ratings system.
SKHSY’s is ranked first in the same industry. It has a B grade for Value, Stability, Momentum and Quality. To see additional SKHSY’s ratings for Growth and Sentiment, click here.
What To Do Next?
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SKHSY shares were unchanged in premarket trading Wednesday. Year-to-date, SKHSY has gained 3.02%, versus a 2.57% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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