PulteGroup Inc (PHM, Financial) experienced a daily loss of 4.66% and a 3-month gain of 13.99% with an Earnings Per Share (EPS) of 12.1. But is the stock fairly valued? This article will provide an in-depth analysis of PulteGroup's valuation. Keep reading to unveil the financial metrics and factors influencing its current market value.
Company Introduction
PulteGroup Inc, one of the largest homebuilders in the United States, operates in 42 markets across 24 states. The company primarily builds single-family detached homes, catering to entry-level, move-up, and active-adult buyers. Besides, PulteGroup offers homebuyers mortgage financing and title agency services through its financial services segment. The company's stock price is currently $78.78, with a market cap of $17.30 billion. The GF Value, an intrinsic value estimation, stands at $77.24, indicating that PulteGroup (PHM, Financial) is fairly valued.
Understanding the GF Value
The GF Value is a proprietary measure that reflects the current intrinsic value of a stock. It is computed based on historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value that the stock should be traded at.
According to the GF Value, PulteGroup (PHM, Financial) is fairly valued. The stock's fair value is estimated based on historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the stock price is significantly above the GF Value Line, the stock may be overvalued, indicating poor future returns. Conversely, if the stock price is significantly below the GF Value Line, the stock may be undervalued, suggesting high future returns. Given PulteGroup's current price of $78.78 per share, the stock is estimated to be fairly valued.
As PulteGroup is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth. These companies may deliver higher future returns at reduced risk.
Financial Strength
Before investing in a company, it's crucial to assess its financial strength. Companies with weak financial strength pose a higher risk of permanent loss. The cash-to-debt ratio and interest coverage provide a good insight into a company's financial strength. PulteGroup has a cash-to-debt ratio of 0.74, better than 53.77% of 106 companies in the Homebuilding & Construction industry. The overall financial strength of PulteGroup is 9 out of 10, indicating its strong financial health.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. Companies with high profit margins are generally safer investments than those with low profit margins. PulteGroup has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $16.90 billion and Earnings Per Share (EPS) of $12.1. Its operating margin is 21.38%, which ranks better than 88.99% of 109 companies in the Homebuilding & Construction industry. Overall, the profitability of PulteGroup is ranked 10 out of 10, indicating strong profitability.
Growth is a crucial factor in a company's valuation. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of PulteGroup is 22.8%, ranking better than 84.31% of 102 companies in the Homebuilding & Construction industry. The 3-year average EBITDA growth rate is 43.2%, ranking better than 78.95% of 95 companies in the Homebuilding & Construction industry.
ROIC vs WACC
Comparing a company's return on invested capital to the weighted average cost of capital can help determine its profitability. 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 return on invested capital is 23.94, and its cost of capital is 9.76.
Conclusion
In summary, the stock of PulteGroup (PHM, Financial) is estimated to be fairly valued. The company's financial condition is strong, and its profitability is robust. Its growth ranks better than 78.95% of 95 companies in the Homebuilding & Construction industry. To learn more about PulteGroup stock, check out its 30-Year Financials here.
To find out the high-quality companies that may deliver above-average returns, please check out GuruFocus High Quality Low Capex Screener.
