I've been loaded up on this heavy since xmas. It's been frustrating watching it go sideways or down even though they more than doubled their expected earnings last quarter. I'll list my thoughts individually so someone can poke holes in my thinking if they are so inclined.
1) Positive: There is a 5 million home deficit right now, which is predicted to take many years to catch up to.
2) Positive: Millennials are the largest demographic in the US and they are technically poised to purchase their first or second homes within the next 10 years. Gen Z isn't as large but the older end of the spectrum should be buying their first homes soon.
3) Positive: Wildfires and hurricanes seem routine at this point. That should contribute reliable demand in the form to rebuilds and repairs. Maybe I'm wrong about this and the add on is trivial.
4) Positive: I know PE isn't everything, but is it nothing? If earnings for next 3 quarters actually fell a buck a share vs Q1 it would still put this stock at just 5.3x 2022 earnings.
5) Positive: Management seems to be laser focused on the shareholder. I believe buybacks topped a billion last year, and half a billion so far in 2022. I've only read positive things about management's reputation, but for all I know they wrote those articles themselves.
6) Neutral: Are the baby boomers entering retirement + death a big deal? Are their houses set to flood the market as they pass on or transfer to nursing homes? I haven't heard much about this factor.
7) Negative: Mortgage rates have gone up and will continue to do so. The people I know who have built recently or are in the process of building didn't seem to take rising interest rate too seriously when I brought them up. They were shocked by the labor and supply costs though. I guess I haven't taken rising interest rates as seriously as the market does. Are there some folks who believe 9%+ rates within the next 2 years is probable? At that point I will admit to being completely out of my depth trying to guess what that could mean for builds.
8) Negative: A general recession would certainly hit demand. I haven't taken recession worries to heart the way many others have… big mistake?
Growth company… value stock… value trap? What am I looking at here?
Leave a Reply