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Is LGI Homes (LGIH) A Smart Long-Term Buy?

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Draco Global, an investment management firm, published its first quarter 2021 investor letter – a copy of which can be downloaded here. A return of +6.7% was delivered by the fund for the first quarter of 2021, and since the beginning, it was + 8%. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

Draco Global, in its Q1 2021 investor letter, mentioned LGI Homes, Inc. (NASDAQ: LGIH), and shared their insights on the company. LGI Homes, Inc. is a Texas, United States-based construction company that currently has a $4.3 billion market capitalization. Since the beginning of the year, LGIH delivered a 65.02% return, extending its 12-month gains to 105.44%. As of May 24, 2021, the stock closed at $167.39 per share.

Here is what Draco Global has to say about LGI Homes, Inc. in its Q1 2021 investor letter:

"LGIH is the 10th real estate developer in the US ($ 3,237m) and specializes in selling first homes with an average unit price 20% below its closest competitor.

The current macro environment of strong economic recovery and low-interest rates in the US is very conducive to encouraging the change from rent to property. The COVID-19 pandemic has also changed work habits, and now the citizen stays longer at home or works from home. Although vaccination advances faster, it will return a bit to the pre-pandemic situation. We think that the changes have come to stay. According to Global Workplace Analytics, 70% of workers in the service sector will do it remotely from home until 2025.

On April 6, LGIH announced that it had closed 2,561 sales transactions vs. 1,835 last year, representing an increase of + 40%. Regarding new communities, LGIH is present today in 110. For 2021, LGIH gives us the following guidelines: 1) Close sales operations between 9,200 and 9,800, 2) 112 to 120 communities, 3) average unit price of sale between $ 260 ky $ 270k, and 4) a gross margin between 24% and 25%.

Our valuation implies a target price for 2023e of $ 185 per share, with home closings of 9,526 in 2021, growth of + 2% in the future, and an average unit sales price of 269k growing at low single digits. Our average purchase price is $ 110 per share, therefore, upside potential in the medium term of more than 68%."

Real Estate, Construction
Real Estate, Construction

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Our calculations show that LGI Homes, Inc. (NASDAQ: LGIH) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the first quarter of 2021, LGI Homes, Inc. was in 16 hedge fund portfolios, compared to 23 funds in the fourth quarter of 2020. LGIH delivered a 50.78% return in the past 3 months.

The top 10 stocks among hedge funds returned 231.2% between 2015 and 2020, and outperformed the S&P 500 Index ETFs by more than 126 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Here you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best innovative stocks to buy to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website:

Disclosure: None. This article is originally published at Insider Monkey.