On August 21, 2023, PulteGroup Inc (PHM, Financial) registered a day's loss of -2.23%. However, the last three months have seen a gain of 12.69%. The company's Earnings Per Share (EPS) stands at 12.1. The question that arises is whether the stock is fairly valued? This article aims to answer this question through an in-depth valuation analysis of PulteGroup Inc (PHM). We encourage you to delve deeper into the following analysis to understand the intrinsic value of this stock.
A Brief Overview of PulteGroup Inc
PulteGroup Inc is one of the largest homebuilders in the United States, operating in 42 markets across 24 states. The company primarily builds single-family detached homes (85% of unit sales) and caters to entry-level, move-up, and active-adult buyers. PulteGroup also offers homebuyers mortgage financing and title agency services through its financial services segment. The company's headquarters are in Atlanta. With a market cap of $17 billion and sales of $16.90 billion, the current stock price is $77.53, which is close to its GF Value of $77.31.
Understanding the GF Value of PulteGroup Inc
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 the business performance. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at.
According to our valuation method, PulteGroup (PHM, Financial) stock is estimated to be fairly valued. The stock's current price of $77.53 per share is in line with its GF Value, indicating that the stock is neither overvalued nor undervalued at this point. Therefore, the long-term return of PulteGroup's stock is likely to be close to the rate of its business growth.
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PulteGroup's Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss to investors. To avoid such a risk, it's crucial to review a company's financial strength before deciding to purchase its shares. A company's cash-to-debt ratio and interest coverage offer great insights into its financial strength. PulteGroup has a cash-to-debt ratio of 0.74, ranking better than 56.19% of 105 companies in the Homebuilding & Construction industry. The overall financial strength of PulteGroup is 8 out of 10, indicating strong financial health.
Profitability and Growth of PulteGroup
Investing in profitable companies carries less risk, especially in those that have demonstrated consistent profitability over the long term. PulteGroup has been profitable 10 years over the past 10 years. With revenues of $16.90 billion and Earnings Per Share (EPS) of $12.1 in the past 12 months, PulteGroup's operating margin of 21.38% is better than 88.89% of 108 companies in the Homebuilding & Construction industry. Overall, GuruFocus ranks PulteGroup's profitability as strong.
One of the most important factors in the valuation of a company is its growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of PulteGroup is 22.8%, ranking better than 84.16% of 101 companies in the Homebuilding & Construction industry. The 3-year average EBITDA growth is 43.2%, which ranks better than 78.72% of 94 companies in the same industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, PulteGroup's ROIC is 23.94, and its WACC is 9.48.
Conclusion
In conclusion, PulteGroup (PHM, Financial) stock is estimated to be fairly valued. The company's financial condition is strong, its profitability is strong, and its growth ranks better than 78.72% of 94 companies in the Homebuilding & Construction industry. To learn more about PulteGroup stock, you can check out its 30-Year Financials here.
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