With a daily loss of -2.74%, a 3-month gain of 5.07%, and an Earnings Per Share (EPS) (EPS) of 468.38, NVR Inc. (NVR, Financial) has sparked interest among investors. However, the question remains: is the stock fairly valued? This article aims to provide a comprehensive valuation analysis of NVR (NVR), encouraging readers to delve into the following sections for a more thorough understanding.
NVR Inc. is a Virginia-based homebuilding company operating in over 33 metropolitan areas across the east of the Mississippi River. The company builds single-family detached homes, townhomes, and condominium buildings under three brands: Ryan Homes, NVHomes, and Heartland Homes. NVR's unique approach of avoiding direct land development activity has resulted in relatively outsize return metrics. Moreover, the company manages a mortgage banking segment and homebuilding operating segments, encompassing four geographic areas; Mid-Atlantic, North East, Mid-East, and South East.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. It is calculated based on historical multiples, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of business performance. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded.
If the stock price is significantly above the GF Value Line, it is considered 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. At its current price of $6089.95 per share, NVR stock is believed to be fairly valued. This implies that the long-term return of its stock is likely to be close to the rate of its business growth.
Financial Strength of NVR
Before investing, it's crucial to assess the financial strength of a company. Investing in companies with poor financial strength carries a higher risk of permanent loss. Evaluating the cash-to-debt ratio and interest coverage can help understand a company's financial strength. NVR has a cash-to-debt ratio of 2.65, which is better than 79.25% of companies in the Homebuilding & Construction industry. The overall financial strength of NVR is 9 out of 10, indicating strong financial health.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. NVR has been profitable 10 out of the past 10 years. Over the past twelve months, the company had a revenue of $10 billion and an EPS of $468.38. Its operating margin is 20.38%, which ranks better than 87.16% of companies in the Homebuilding & Construction industry. Overall, the profitability of NVR is ranked 10 out of 10, indicating strong profitability.
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of NVR is 17.3%, which ranks better than 72.28% of companies in the Homebuilding & Construction industry. The 3-year average EBITDA growth is 34.6%, which ranks better than 71.28% of companies in the same industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, NVR's ROIC was 61.97, while its WACC came in at 8.62.
Overall, NVR Inc. (NVR, Financial) stock is believed to be fairly valued. The company's financial condition is strong and its profitability is robust. Its growth ranks better than 71.28% of companies in the Homebuilding & Construction industry. For more detailed financial information on NVR stock, you can check out its 30-Year Financials here.
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