It builds single-family homes, duplexes, town homes and condominiums that are primarily marketed through independent real estate brokers. It also originates and sells mortgages, as well as title insurance policies and other closing services.
Today’s rock-bottom interest rates are making its product more affordable than ever. For example, a $250,000 30-year mortgage at 3% equates to a monthly principal and interest payment of just $1,054.
That relatively low payment is astonishing to those of us who remember the double-digit-percentage mortgage rates of the early 1980s. That’s low enough to have motivated a lot of renters to start building equity again. Much of D.R. Horton’s competition is no longer around.
Many small, local builders didn’t survive the financial crisis a decade ago. Or, they didn’t have the ability to buy land at fire-sale prices during the crunch. Tighter credit standards for builders also makes it tough for them to get development and construction loans now.
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But business at D.R. Horton just keeps getting better. The homebuilder recently reported an 84% increase in earnings per share — surpassing the Zacks Consensus Estimate by 24% — on a 47% increase in sales. Moreover, the company increased its full-year expectations.
Here we have a company that is growing at 84% year-over year, with double-digit-percentage operating and profit margins and a management that is earning a healthy 24% return on equity. Yet, the stock sells for just 12 times trailing earnings and nine times prospective earnings for this year. Now that’s dirt-cheap!
It’s not just low interest rates that are driving the residential real estate market. Thanks in part to the coronavirus and a spike in crime, many families are moving out of crowded urban areas and into the suburbs or smaller towns. The work-at-home trend also has convinced many people that they need a larger home that includes a dedicated office.
D. R. Horton’s strong balance sheet, high liquidity and experienced management leave it well positioned to profit moving forward. The stock offers an attractive buying opportunity.