Standard Pacific (SPF, Financial) posted positive third-quarter results. Its strong results clearly indicate that its strategic initiatives, focused toward driving profitability, are on track and are expected to create shareholder returns in the upcoming quarters. The company is now expecting a better performance in the upcoming quarters. Let us take a look at how Standard Pacific is positioned in the market.
Increasing backlogs
The most promising thing that the company is seeing is increase in the dollar backlogs. There is a good 17% increase in the backlog which is a good sign for the company as lot of cash is lined up. This will also make an attractive balance sheet. This can also be a key reason of gaining market share in future. This also ensures smooth flow of its move up strategy driving more pricing opportunities to it in the key markets.
There are many key points that are prime growth drivers for Standard Pacific. It is already owning a good land inventory which is reflecting its profitable usage in the future. This is not enough as other points such as the quality of the community locations, the strength of its value proposition and its laser focus on maintaining a feasible cost structure is also supporting its overhead structure.
Moreover, Standard Pacific is concerned about its strong long term prospects. It is making moves that are mainly focused on this criteria. It already has a strong land pipeline and with it, the company is seeing good opportunities that will certainly help it to meet its underwriting criteria. It is further focused on acquiring land that will result in new community openings in later 2016. These present great opportunities to Standard Pacific to drive its business further in the next fiscal year.
Headwinds and conclusion
Despite these strong points, Standard Pacific is also facing some headwinds and slowdowns. Though the housing market is recovering, the recovery is slow due to complex structure, market and political issues. With these crunches in front, Standard Pacific is expecting weaker demand in the future that might hurt its margins fractionally.
But on the other hand, Standard Pacific thinks that it should not affect its momentum largely as it thinks that the economic and demographic fundamentals of the housing market are still strong. Hence, Standard is positive about its prospects and is well positioned to be profitable in long term with the recovery anticipated in the housing market.
With a trailing P/E 13.00 the stock looks reasonable but the Forward P/E of 11.31 shows slow earnings growth. Even in the long term the stock is disappointing. Its earnings are growing at CAGR of just 1.03% which is lower than the industry average of 17.86%. The company is undoubtedly improving but due to the soft and slow recovery of housing market, the efforts are not so profitable. So as per investment perspective I would like to suggest the investors to stay away from the stock until it shows concrete signs of gaining market share.
