Standard Pacific (SPF, Financial) reported pretty decent numbers for the third quarter with year-over-year growth in revenue, while profit was marginally down. The stock behaved just like any other company in the housing market and is currently near its 52-week low. The growth in the macro economy is also quite slow, which again makes it an uncertain environment for this industry. With such headwinds waiting in the days ahead, let’s see what can we expect from this stock.
Improving metrics
During the quarter its backlogs improved significantly, which was mainly driven by increase in the average selling price of homes. This in turn reflects its growth initiatives and pricing opportunities in select markets. The company also managed to improve its gross margin, which in fact came as the leading operating margin of the industry. These strong numbers were on account of the restructuring strategies adopted by the management.
In addition, it has a strong land portfolio and spent around $251 million on land and the related development issues during the quarter. It expects the total spending on land for 2014 would be around $1 billion, while for 2015 it is expected to be in the range of $800 million to $1.2 billion. Further the management is focused to acquire those lands that will result in new community openings in the second half of 2016 and even beyond. Interestingly the company currently owns around 190 communities, which is expected to open in and after 2015.
Key developments
These are significant developments that could bolster its growth in the coming days. But as mentioned earlier, these are challenging times and the growth is very slow. In spite of this, the management believes that the fundamentals in the housing market still remain strong, and it will eventually emerge out of this sluggish period. It will be a matter of time to see how things turn out with the industry and especially with Standard Pacific.
As the market is still recovering, it will focus on acquiring new lands, which is significant for its business. Going forward, the company has announced to repurchase around $100 million of its common stock, which will boost its earnings in the upcoming quarters. As of September 30 the company had a backlog of 2,208 homes of which 1,341 are scheduled to close in the fourth quarter. In this manner it will chalk out its future course of action that will be in line with its growth initiatives.
Conclusion
Currently its trailing P/E is 0 but has a forward P/E of 11.42, which is in contrast to the above mentioned facts. However, Standard Pacific indeed has strong fundamentals and its future considerations mentioned above could yield strong return in the long run. Although for now it may be a wait and watch situation for investors but in the coming years as demand improves Standard Pacific could be a strong bet.
