An improvement in housing backlog conversion rate highlights the recovering global economy, and it is believed to benefit Ryland Group (RYL, Financial) over the long term. As a result, Ryland illustrated a significant increase in sales in the southeast and the west, where it contributed hugely to communities and capital and partially offset by a 10% decline in Texas. Northern region sales were comparable to previous year. The termination rate was 12% of starting backlog, or 22% of total sales. Fresh orders for the complete year were recorded at 7,668, or 6% expansion in units and a 15% growth in dollar volume compared to 2013.
Catalysts to consider
The significant growth in the full year orders along with a major expansion in the dollar volumes and units is estimated to improve the top line growth of the company and drive enhanced synergies for the key stakeholders.
Ryland demonstrated significant increase in the number of total orders from its divisions in Denver, Southern California, Raleigh and Phoenix with Denver posting the top year-over-year expansion to total orders, with significant growth rates exceeding 50%.
Ryland Group is quite optimistic regarding the homebuilding growth prospects with the ongoing improvement in the overall global economic conditions.
Homebuyers should also be attracted by the reasonable home interest rates. These factors when combined with the Ryland-particular strengths, like 21% additional active communities expected to start in the beginning of this year, superior market positioning among the top MSAs in the country, and innovative home designs crafted particularly to satisfy the needs and wants of the local home buyer. Therefore, the long-term outlook for homebuilding industry, particularly for Ryland, is positive.
The accelerated and significant improvement in the global economic environment is forecasted to hugely increase the purchasing power of people and in turn expand the homebuilding spending, thus benefiting the housing major.
Ryland also successfully transformed 70% of its starting backlog during the quarter, reporting the highest conversion rate in several years.
Further, a major expansion in the order count for Ryland in the quarter and for the entire year depicts the solid positioning of the company among its key competitors such as D.R. Horton (DHI, Financial), Beazer Homes USA (BZU, Financial) and Hovnanian Enterprises (HOVU, Financial).
Making improvements
Ryland is focused on improving the health of its balance sheet by paying off $126 million of senior notes with cash, thus lowering the quantity of interest capitalized in 2015 and enhancing its debt to capital ratio. It also formed a key and unsecured $300 million credit facility during the fourth quarter to allow it with extra liquidity.
The significant cost-cutting efforts of Ryland indicate the improved and optimized execution strategies implemented by the company, allowing it to diversify significantly among the entry level, first-time and second-time move ups.
The calculated growth of innovative communities in addition to a sharp focus on significant and fresh premium customer’s market segment is believed to drive long-term growth synergies for the homebuilding major.
Conclusion
Overall, the investors are advised to invest into the Ryland Group Inc. looking at the impressive valuation levels with the trailing P/E and forward P/E ratios of 15.04 and 11.31 respectively. Also, it is better than the industry’s average P/E of 26.02, signifying lower stock cost. However, the PEG ratio of 3.51, above 1 indicates slower and costlier company growth compared to the solid industry’s average of 0.98. The profit margin of 6.72% is also satisfactory. However, Ryland still needs to optimize its balance sheet with huge total debt of $1.53 billion against weaker total cash of $548.47 million only, restricting it to plan for future growth investments.
