Based on key financial metrics such as the price-to-sales ratio, shareholder yield and the price-earnings ratio, the following 5 stocks made the list for top value stocks in the Homebuilding industry. Those looking for value stocks to add to their portfolio may want to use this list as a starting point for further investment research.

Latest Homebuilding Stock News

Before choosing which top Homebuilding stock to buy, be sure to conduct proper due diligence: analyze various financial metrics and look at historical data, public statements and news coverage.

Our outlook is positive, as families living in highrise condos or apartment rentals seek singlefamily homes or out-of-state migration. Summer months are normally the seasonally peak period for homebuilding, and we think the slower months in autumn/winter are likely to remain strong depending on available supply of selling communities. Through June 2021, U.S. housing economic data has shown continued strength in new housing sales, housing starts and permits, as well as home deliveries, surprising even homebuilders with the current market strength. We think homebuilders are at an advantage to raise prices given the alltime low of U.S. existing home inventory as well as the large demand of millennials that are financially able to own a home with low rates and built up savings. Most homebuilders have order backlog that can produce solid home deliveries in 2022. Opening up new selling communities will be critical to sustain high growth in new orders, home deliveries, and homebuilding revenue. Home prices are hitting records in just about every part of the country. The S&P CoreLogic CaseShiller Home Price Indices are the leading measures of U.S. residential real estate prices that track changes in the value of residential real estate. The June 29 release for the 20-City Composite reported a 14.9% increase Y/Y for April data, up from 13.4% in the previous month. Showing the highest Y/Y gains among the 20 cities were Phoenix (+22.3%), San Diego (+21.6%), and Seattle (+20.2%). The demand side presents challenges as to forecasting future market conditions, especially what can go wrong with one of the strongest housing markets in the last 30 years. In 2021, mortgage rates are likely to rise, as evidenced by 30-year fixed rate mortgages in the 3.30% to 3.40% range. We think over 4.0% would a warning sign. Homebuilders are doing well in all product categories, and we think the wealth effect from the stock market is bringing more cash buyers for luxury homes. Active adult communities are getting baby boomers who are finding it easy to sell their homes. We think a strong employment market bodes well for households, who might have more confidence to buy a home, especially from millennials.

Why Focus on Undervalued Homebuilding Stocks?

Value investors seek to buy stocks at a discount to their intrinsic value. Long-term returns show that such strategies are advantageous. Value stocks, as a group, tend to outperform growth stocks over extended periods of time. Typically, value investors perform financial analysis of numerous metrics, don’t follow the herd and are long-term investors.

AAII’s A+ Investor Value Grade is derived from a stock’s Value Score. The Value Score is the percentile rank of the average of the percentile ranks of the price-to-sales ratio, price-earnings ratio, enterprise-value-to-EBITDA (EV/EBITDA) ratio, shareholder yield, price-to-book-value ratio and price-to-free-cash-flow ratio. The score is variable, meaning it can consider all six ratios or, should any of the six ratios not be valid, the remaining ratios that are valid. To be assigned a Value Score, stocks must have a valid (non-null) ratio and corresponding ranking for at least two of the six valuation ratios.

What Goes Into AAII’s Value Grade?

Stock evaluation requires access to huge amounts of data as well as the knowledge and time to sift through it all, make sense of financial ratios, read income statements and analyze recent stock movement. AAII created A+ Investor, a robust data suite that condenses data research in an actionable and customizable way suitable for investors of all knowledge levels, to help investors with that task.

AAII’s proprietary stock grades come with A+ Investor. These offer intuitive A–F grades for more than just value. It is possible for a stock to appear cheap based on one valuation metric but appear expensive on another. It is also possible for one valuation ratio to be associated with outperforming stocks during certain periods of time but not others. Some stocks may even have null values for certain metrics like the price-earnings ratio or the price-to-book ratio but not others. An example of this would be a company with losses instead of profits or a negative book value because of heavy borrowing. Negative earnings or book value result in non-meaningful ratios that are left blank or null.

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5 Undervalued Homebuilding Stocks

Of course, there are countless value stocks that are worth mentioning, but this is a concise list of the top 5 undervalued stocks in the Homebuilding industry for Monday, March 27, 2023. Let’s take a closer look at their individual scores to see how they measure up against each other and the Homebuilding industry median.

The Value Grade is assigned based on how each stock’s composite valuation compares to all other stocks.

The process for assigning grades starts with each variable for a given stock. The percentile rankings for all valid ratios that a stock has are calculated. So, for instance, a stock could have a price-to-book ranking in the 43rd percentile, a price-earnings ranking in the 67th percentile, a price-to-sales ranking in the 23rd percentile, etc. Then, those rankings are averaged for each stock. (A minimum of two valid variables are required, though all six will be used if available.)

Once the average of the individual variables is calculated, that average is ranked against all stocks. Put another way, each stock’s composite valuation is compared to all other stocks. These ranks are then sorted into quintiles from the cheapest 20% (a grade of A) to the most expensive 20% (a grade of F).

As always, we recommend that you conduct proper due diligence and research before investing in any security. We also suggest that investors utilize numerous grades, not just value, when it comes to deciding whether a company is a good fit for their allocation needs.

DR Horton Inc’s Value Grade

Value Grade:

D.R. Horton, Inc. is a homebuilding company. The Company is engaged in the acquisition and development of land and the construction and sale of residential homes. Its segments include homebuilding, Forestar lot development, financial services, and rental operations. Its homebuilding business operates in 106 markets across 33 states. Its Forestar lot development segment operates in 53 markets across 21 states. Its financial services segment provides mortgage financing and title agency services to homebuyers in many of the Company?s homebuilding markets. Its rental segment consists of multi-family and single-family rental operations. The multi-family rental operations develop, construct, lease and sell residential rental properties. The single-family rental operations primarily construct and lease single-family homes within a community and then market each community for a bulk sale of rental homes. Its brands include Emerald Homes, Express Homes and Freedom Homes.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

DR Horton Inc has a Value Score of 74, which is considered to be undervalued.

When you look at DR Horton Inc’s price-to-sales ratio at 0.99 compared to the industry median at 0.57, this company has a higher price relative to revenue compared to its peers. This could make DR Horton Inc’s stock less attractive for value investors.

DR Horton Inc’s price-earnings ratio is 6.01 compared to the industry median at 5.06. This means it has a higher share price relative to earnings compared to its peers. This could make DR Horton Inc less attractive for value investors.

Now, let’s assess DR Horton Inc’s EV/EBITDA ratio, also known as enterprise multiple. At 4.5, when compared to the industry median of 4.2, the company may be considered overvalued in relation to its peers. Value investors could use the enterprise multiple to identify stocks that are considered overvalued or undervalued relative to their industry.

Shareholder yield is the sum of a stock’s dividend yield (paid over previous 12 months minus special dividends) and the percentage of net share buybacks over the previous 12 months. DR Horton Inc’s shareholder yield is higher than its industry median ratio of 3.31%. Value investors may look for an attractive shareholder yield because it can be a powerful tool for identifying if the company has a good management team.

As one of the most common value metrics, the price-to-book ratio evaluates a company’s current market price relative to its book value. DR Horton Inc’s price-to-book ratio is higher than its industry median ratio of 1.15. This could make DR Horton Inc less attractive to investors looking for a new addition to their portfolio.

Lastly, let’s take a look at DR Horton Inc’s price-to-free-cash-flow ratio (P/FCF), which can indicate a company’s market value relative to its operating cash flow. DR Horton Inc’s price-to-free-cash-flow ratio is higher than its industry median ratio of 9.99. This could make DR Horton Inc less attractive because the higher P/FCF ratio indicates that DR Horton Inc is undervalued. The P/FCF ratio metric can also be viewed over a long-term time frame to see if the company's cash flow to share price value is generally improving or worsening.

Gafisa SA (ADR)’s Value Grade

Value Grade:

Gafisa S.A. is a diversified national homebuilder. The Company's segments are Gafisa (for ventures targeted at high and medium income) and Tenda (for ventures targeted at low income). The Company's brands include Tenda, which serves the affordable entry-level housing segments, Gafisa, which offers a range of residential options to the mid to higher income segments and Alphaville (equity method investment), which focuses on the identification, development and sale of residential communities. In addition, it provides construction services to third parties on certain developments in the Gafisa segment where it retains an equity interest. Its real estate business activities include developments for sale of residential units, land subdivisions and commercial buildings; construction services, and sale of units through its brokerage subsidiaries, Gafisa Vendas Intermediacao Imobiliaria Ltda and Gafisa Vendas in Rio de Janeiro, jointly referred to as Gafisa Vendas.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

Gafisa SA (ADR) has a Value Score of 63, which is considered to be undervalued.

Gafisa SA (ADR)’s price-to-book ratio is higher than its peers. This could make Gafisa SA (ADR) less attractive for value investors when compared to the industry median at 1.15.

You can read more about Gafisa SA (ADR)’s key financial metrics like shareholder yield, price-to-free-cash-flow and EV/EBITDA ratio, or learn more about its Momentum and Growth Grades, by subscribing to A+ Investor.

Legacy Housing Corp’s Value Grade

Value Grade:

Legacy Housing Corporation is a company, which is engaged in selling and financing manufactured homes and tiny houses. It operates primarily in the southern United States, it offers its customers an array of homes ranging in size from approximately 390 to 2,667 square feet consisting of one to five bedrooms, with one to 31/2 bathrooms. The Company manufactures and provides for the transport of mobile homes, provides wholesale financing to dealers and mobile home parks, provides retail financing to consumers, and is involved in financing and developing new manufactured home communities. The Company manufactures its mobile homes at plants located in Fort Worth, Texas, Commerce, Texas and Eatonton, Georgia. The Company relies on a network of dealers to market and sell its mobile homes. The Company also sells homes directly to dealers and mobile home parks.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

Legacy Housing Corp has a Value Score of 63, which is considered to be undervalued.

Legacy Housing Corp’s price-earnings ratio is 7.9 compared to the industry median at 5.1. This means that it has a higher price relative to its earnings compared to its peers. This makes Legacy Housing Corp less attractive for value investors.

Legacy Housing Corp’s price-to-book ratio is lower than its peers. This could make Legacy Housing Corp more attractive for value investors when compared to the industry median at 1.15.

You can read more about Legacy Housing Corp’s key financial metrics like shareholder yield, price-to-free-cash-flow and EV/EBITDA ratio, or learn more about its Momentum and Growth Grades, by subscribing to A+ Investor.

NVR, Inc.’s Value Grade

Value Grade:

NVR, Inc. is engaged in the construction and sale of single-family detached homes, townhomes, and condominium buildings. Its segments include Homebuilding Mid Atlantic, Homebuilding North East, Homebuilding Mid East and Homebuilding South East. Its Homebuilding Mid Atlantic segment operates in various geographic regions, which include Maryland, Virginia, West Virginia, Delaware and Washington, District of Columbia (D.C.) ranging from two to four bedrooms. Its Homebuilding North East segment operates in various geographic regions, which include New Jersey and Eastern Pennsylvania. Its Homebuilding Mid East segment operates in various geographic regions, which include New York, Ohio, Western Pennsylvania, Indiana, and Illinois. The Homebuilding South East segment operates in various geographic regions, which include North Carolina, South Carolina, Tennessee, Florida and Georgia. It also provides mortgage-related services to home building customers through its mortgage banking operations.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

NVR, Inc. has a Value Score of 65, which is considered to be undervalued.

NVR, Inc.’s price-earnings ratio is 11.0 compared to the industry median at 5.1. This means that it has a higher price relative to its earnings compared to its peers. This makes NVR, Inc. less attractive for value investors.

NVR, Inc.’s price-to-book ratio is lower than its peers. This could make NVR, Inc. more attractive for value investors when compared to the industry median at 1.15.

You can read more about NVR, Inc.’s key financial metrics like shareholder yield, price-to-free-cash-flow and EV/EBITDA ratio, or learn more about its Momentum and Growth Grades, by subscribing to A+ Investor.

Skyline Champion Corp’s Value Grade

Value Grade:

Skyline Champion Corporation is a factory-built housing company. The Company offers manufactured and modular homes, park model recreational vehicle standard (RVs), accessory dwelling units (ADUs) and modular buildings for the multi-family and hospitality sectors. It manufactures homes under various brands, such as Skyline Homes, Champion Home Builders, Genesis Homes, Athens Park Models, Dutch Housing, Atlantic Homes, Excel Homes, Homes of Merit, New Era, Silvercrest, and Titan Homes in the U.S., and Moduline and SRI Homes in western Canada. The Company also operates a factory-direct retail business, Titan Factory Direct, which offers a selection of manufactured and modular homes as well as park model RVs with 18 sales centers spanning the southern United States. Its Star Fleet Trucking business provides transportation services to the manufactured housing and other industries. It operates through approximately 41 manufacturing facilities across the United States and western Canada.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

Skyline Champion Corp has a Value Score of 62, which is considered to be undervalued.

Skyline Champion Corp’s price-earnings ratio is 9.0 compared to the industry median at 5.1. This means that it has a higher price relative to its earnings compared to its peers. This makes Skyline Champion Corp less attractive for value investors.

Skyline Champion Corp’s price-to-book ratio is lower than its peers. This could make Skyline Champion Corp more attractive for value investors when compared to the industry median at 1.15.

You can read more about Skyline Champion Corp’s key financial metrics like shareholder yield, price-to-free-cash-flow and EV/EBITDA ratio, or learn more about its Momentum and Growth Grades, by subscribing to A+ Investor.

Other Homebuilding Stock Grades

Value is just one of the five Stock Grades included in our A+ Investor service. AAII members can see the top-graded stocks—those with grades of A or B for value, growth, momentum, earnings estimate revisions and quality—on the A+ Stock Grades Screener.

Also, if you want full access to all of AAII’s premium services, you can subscribe to one convenient bundled plan called AAII Platinum where you can try out A+ Investor, AAII Dividend Investing, the Stock Superstars Report, Growth Investing and VMQ Stocks. With the other premium services, you can dive deep into additional metrics, portfolios, commentary and information about Homebuilding stocks as well as other industrys.

Choosing Which of the 5 Best Homebuilding Stocks Is Right for You

Choosing which value stocks to invest in will ultimately depend on your individual goals and allocation; however, comparing similar value stocks in the same industry can help you analyze which might be better investments for you in the long run. So, let’s take a look at the Value Grade for all of our stocks.

• DR Horton Inc stock has a Value Grade of B.
• Gafisa SA (ADR) stock has a Value Grade of B.
• Legacy Housing Corp stock has a Value Grade of B.
• NVR, Inc. stock has a Value Grade of B.
• Skyline Champion Corp stock has a Value Grade of B.

Now that you have a bit more background about each of the 5 undervalued stocks in the Homebuilding industry as well as their overall grades, it’s time for you to conduct additional research to see if these could fit your portfolio needs based on your goals and risk tolerance. AAII can help you figure out both and identify which investments align with what works best for you.

We do so through a program of education that teaches you to invest for yourself and become an effective manager of your own wealth—no more relying on others for your financial independence. You can rely on AAII for timeless articles on financial planning and stock-picking, unbiased research and actionable analysis that makes you a better investor.

A+ Investor adds to that qualitative teaching by giving you a powerful data suite that helps you whittle down investment decisions to find stocks, exchange-traded funds (ETFs) or mutual funds that meet your needs.

Additional Resources About Homebuilding Stocks

Want to learn more about Homebuilding stocks to see if they could be the right investment for you? Check out some additional resources and articles to help you on your financial journey.

• 5 Undervalued Homebuilding Stocks for Monday, March 27
• 4 Undervalued Homebuilding Stocks for Friday, March 24
• 4 Undervalued Homebuilding Stocks for Thursday, March 23
• Why KB Home’s (KBH) Stock Is Up 7.53%

AAII Disclaimer

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