How To Find The Best Homebuilders In 7 Easy Steps

The graphs below were produced by Capital Market Labs.

While the S&P 500 is up double-digit percentage points this year, the SPDR S&P Homebuilders ETF XHB is up just a little over 2 percent.

Let’s examine the industry through visualizations, and find the top two performers through the lens of fundamental metrics. We’ll find two top-performers in the stock market as well.

The first chart gives a sense of size, with total assets on the y-axis and total revenue on the x-axis. There are five companies in the industry that stand out as clearly larger than the rest.

Next, let’s plot net income margin percentage on the y-axis and one-year total revenue growth on the x-axis. There are four companies growing substantially faster than the rest.

Next, let’s remove the companies in the chart above that have either negative net income margin percentage or negative revenue growth. Then, with that population, let’s chart the average price of delivered homes on the y-axis and total revenue on the x-axis.

There are essentially three tiers to pricing for these firms. The “normal” range contains most of the companies, then there is a high price range with two firms, and finally a “cheap” price range with one company.

Let’s eliminate Cavco Industries, Inc. CVCO (the “cheap” price range builder).

From that population, let's then chart the growth in active communities (or subdivisions) on the y-axis and total revenue on the x-axis.

There are two firms that are shrinking in this measure.

Now, let’s eliminate those two shrinking firms (M.D.C. Holdings, Inc. MDC and PulteGroup, Inc. PHM), and from that population, chart cancelation rate on the y-axis and total revenue on the x-axis.

Next, let's eliminate the three companies with the largest cancelation rates, chart cash from operations (TTM) on the y-axis and place total revenue on the x-axis. Five firms from this already-screened population exhibit positive cash from operations.

Finally, taking just those final five companies, let’s again chart total assets on the y-axis and total revenue on the x-axis.

Selecting the two largest companies from the final list of screened companies yields Installed Building Products Inc IBP and NVR, Inc. NVR.

Installed Building Products is up 41 percent since going public in February, while NVR is up 23.7 percent in the last year. Both returns are above the S&P 500 (13.16 percent) and the HomeBuilders ETF (2.18 percent) over the past twelve months.

Ophir Gottlieb can be found on Twitter @ophirgottlieb.

Image credit: Public Domain