D.R. Horton Inc (DHI, Financial), a leading homebuilder in the United States, has seen a daily gain of 2.06% and a 3-month gain of 10.99%. The company's Earnings Per Share (EPS) stands at 14.06, raising the question: is D.R. Horton (DHI) fairly valued? This article aims to answer this question by providing a comprehensive analysis of D.R. Horton's valuation. Let's delve into the financial details.
Company Introduction
D.R. Horton operates in 110 markets across 33 states in the U.S., primarily building single-family detached homes. The company caters to entry-level, move-up, luxury buyers, and active adults, and also offers mortgage financing and title agency services through its financial services segment. Based in Arlington, Texas, D.R. Horton manages six regional segments across the U.S. With a stock price of $119.65 and a GF Value of $121.57, the company appears to be fairly valued.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line represents the fair value at which the stock should ideally be traded. If the stock price is significantly above the GF Value Line, it is 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.
Valuation of D.R. Horton (DHI, Financial)
Based on the GF Value calculation, D.R. Horton (DHI) appears to be fairly valued. With a current price of $119.65 per share and a market cap of $40.50 billion, the stock's long-term return is likely to be close to the rate of its business growth.
Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. D.R. Horton has a cash-to-debt ratio of 0.55, which ranks worse than 50.47% of 107 companies in the Homebuilding & Construction industry. Based on this, GuruFocus ranks D.R. Horton's financial strength as 7 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, poses less risk. D.R. Horton has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $34.60 billion and Earnings Per Share (EPS) of $14.06. Its operating margin is 17.95%, which ranks better than 82.73% of 110 companies in the Homebuilding & Construction industry. Overall, GuruFocus ranks the profitability of D.R. Horton at 10 out of 10, which indicates strong profitability.
Growth is probably the most important factor in the valuation of a company. The 3-year average annual revenue growth rate of D.R. Horton is 26.5%, which ranks better than 88.35% of 103 companies in the Homebuilding & Construction industry. The 3-year average EBITDA growth rate is 56.8%, which ranks better than 89.58% of 96 companies in the Homebuilding & Construction industry.
ROIC vs WACC
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted 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. For the past 12 months, D.R. Horton's return on invested capital is 18.87, and its cost of capital is 10.05.
Conclusion
In conclusion, the stock of D.R. Horton (DHI, Financial) appears to be fairly valued. The company's financial condition is fair and its profitability is strong. Its growth ranks better than 89.58% of 96 companies in the Homebuilding & Construction industry. To learn more about D.R. Horton stock, you can check out its 30-Year Financials here.
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