LGI Homes (LGIH) is one of the nation’s fastest growing homebuilders; the company is engaged in the design and construction of quality entry level homes primarily for the first time buyer, suggests Tom Bishop, growth stock expert and editor of BI Research.
It has 118 communities in 16 states where it builds and sells its homes. The average home goes for $248,000 but houses can range to ~3,000 square feet and as many as 5 bed-rooms with prices over $400,000.
LGI has 45,000 lots owned and controlled for future development and is benefiting from a lack of entry level homes on the market and the desire of pandemic-weary people to move out of densely populated living situations and into homes that offer more space and privacy.
Another positive here is the low interest rate environment with mortgage rates around 3%, due to rates slashed because of the pandemic.
The shares have rocketed ahead in part on Q2 results. Analysts expected EPS to slide $0.20 in Q2 from last year’s figure to $1.62, but instead LGI tabled $2.21, an amazing $0.79 consensus beat and 36% growth over last year, despite the pandemic.
Revenues weighed in at $481 million vs. last year’s $495 and estimates of $474, $7 million more than the consensus. Also selling expenses were down $4 million as compared to last year. Better yet, management noted that July orders were up a huge 60% vs. last July. Wow.
The stock has risen some 40% since our recommendation a little over two monthsago — despite the pandemic, record unemployment and the worst recession in our life-time.
But the factors that led me to recommend it have had a more profound impact in the short term than even I imagined. Analysts are looking for EPS of $9.21 for 2020 and $10.20 in 2021. A PE of 12 on 2020 EPS is pretty lean. The stock is still a buy.
