AV Homes' (AVHI, Financial) numbers are quite encouraging and to keep the same pace of growth, it is working hard in opening communities for sales and building homes for deliveries. As a part of its long-term growth strategy, management continues to selectively acquire and open new communities. This was further backed by a strong balance sheet as it ended the third quarter with a solid financial position and has sufficient liquidity to take on the growth opportunities as when they arise in the market.
Key strategies
In addition, AV Homes will focus on selectively raising prices, while reducing house costs to improve margins. Its margins had fallen 160 basis points during the third quarter, but such initiatives will bring its financials back on track. Moreover, as its home building SG&A improved 13.2%, the company continues to gain leverage in the overhead expense area. A similar improvement was seen in its corporate overheads as well. These developments will help the company in the days ahead to improve its financials.
In fact, the management cites that its third-quarter results reflect the steady increase selling communities and communities with closings. The above numbers also show that the net new orders are increasing at a strong pace, which ultimately drives its revenue and backlog. Not only this, but as the management continually focuses to leverage its overhead expenses, the bottom line is consequently improved.
Also, AV Homes continue to benefit from the acquisition of Royal Oak Homes, done in March 2014. This new addition boosted the primary residential community count. Although in the initial period of its acquisition the company had to face some headwinds on account of lowered margin issues. But Royal Oak is a significant asset and will play a significant role to bolster its growth.
Conclusion
However in spite of all these positives its numbers do not support it. The company currently does not have any signs of trailing or forward P/E. Moreover, its stock has declined considerably in the past one year and looking at its P/E the chances of improvement seem to be bleak. As a result investors need to be cautious on this stock and observe from the side lines for the stock to turnaround.
