AV Homes (AVHI, Financial) has delivered solid improvement in its financial performance. This is clearly evident by a doubled revenue to $104 million which is largely contributed from a solid 123% increase in home building and amenity revenue. The housing market is recovering and has affected many home builders like AV Homes positively. The company is looking forward for a better financial performance in the upcoming quarters to achieve this, AV Homes is focusing on improving its operating performance.
But there is another side of the coin as well. Though the housing market is recovering, it is expected to see a slow improvement. Besides this there are several other factors that might be short term hurdles for home builders such as AV Homes. Let us have a detailed insight.
Strong improvements
Looking at AV Homes’ current position, the company is enjoying a solid position in the market. We can see this with its fourth quarter results. It delivered a good 98% improvement in the homes delivered with 150% increase in the new orders. It has also expanded its market share with the acquisition of Royal Oak Homes. This is leading company balance its market segmentation in the primary residential and active adult segments.
It is also making excellent progress in building and closing homes. In the support of its growth strategy, AV Homes continues to open new communities while increasing its selling communities to 27. Despite the forecasts of a flat housing market in the near term, AV Homes is receiving new orders. With these opportunities beforehand, AV Homes is looking for expanding its geographical foot print.
Housing outlook for 2015
AV Homes is in a good financial position to deliver good results in 2015. But if we look at the overall housing market in 2015, the analysts are expecting a flat “Rebound Effect”. On one hand, AV Homes is seeing positive signs such as growth in the jobs due to recovering U.S economy which will surely improve the buying trends leading to new home demand. But, the consensus are anticipating this in other ways. The analysts think that the prices are likely to rise slowly affecting the affordability. Further, as job scenario is changing in U.S and the company is expecting many new home orders. But the analysts are expecting the Federal Reserve to raise the mortgage and the interest rates that can also be a short term hurdle for AV Homes.
Competitors and conclusion
In these conditions, PulteGroup (PHM) can be a tough competitor for AV Homes. PulteGroup with EBITDA of 754.39 million is in a solid financial position as compared to AV Homes with EBITDA of 8.14 million. However, AV Homes is definitely a better pick than PulteGroup in the long run, but based on ratios, PulteGroup is better. AV Homes should check its moves and should also undertake some strategies to be profitable in the growing competition.
Moving to the fundamentals, with a forward P/E of 27.25, the stock is showing solid earnings growth in the near term. While the stock can be a good long term holding for the next five years as the company’s earnings are growing at a CAGR of 20.00% as compared to the industry average of 18.72%. There is definitely much steam in the AV Homes’ efforts but considering the short term headwinds in the housing segment, I would like to suggest the investors to consider investment in AV Homes from side lines as of now and wait for concrete signs of the stock gaining market share in future.
