Unveiling LGI Homes (LGIH)'s Value: Is It Really Priced Right? A Comprehensive Guide
The stock of LGI Homes Inc (NASDAQ:LGIH) experienced a daily loss of 4.3% and a three-month loss of 25.45%. Despite the recent losses, the Earnings Per Share (EPS) (EPS) stands at 8.69. This article aims to answer the question: Is LGI Homes (NASDAQ:LGIH) modestly undervalued? Let's delve into the valuation analysis of this intriguing stock.
A Snapshot of LGI Homes Inc (NASDAQ:LGIH)
LGI Homes Inc is a leading player in the design, construction, and sale of new homes in various markets. The company offers entry-level homes, move-up homes under the LGI Homes brand, and luxury series homes under the Terrata Homes brand. The current stock price stands at $94.36, while the GF Value, an estimation of its fair value, is $118.03. This suggests that the stock might be modestly undervalued.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, past returns and growth, and future business performance estimates. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
With a market cap of $2.20 billion, LGI Homes (NASDAQ:LGIH) is believed to be modestly undervalued at its current price of $94.36 per share. Consequently, the long-term return of its stock is likely to be higher than its business growth.
Assessing the Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. LGI Homes has a cash-to-debt ratio of 0.04, ranking worse than 96.23% of 106 companies in the Homebuilding & Construction industry. This suggests a fair financial strength for LGI Homes.
Profitability and Growth
Investing in profitable companies is less risky. LGI Homes has been profitable 10 over the past 10 years, with an operating margin of 10.45% that ranks better than 55.96% of 109 companies in the industry. The average annual revenue growth of LGI Homes is 10.3%, ranking better than 51.49% of 101 companies in the industry. The 3-year average EBITDA growth is 24.6%, which ranks better than 64.52% of 93 companies in the industry.
ROIC vs WACC
Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. Over the past 12 months, LGI Homes's ROIC was 6.22, while its WACC came in at 9.86.
Conclusion
In summary, the stock of LGI Homes (NASDAQ:LGIH) is believed to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 64.52% of 93 companies in the Homebuilding & Construction industry. To learn more about LGI Homes stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
