PulteGroup Inc (PHM, Financial) has been making waves in the market with a daily gain of 1.86% and a substantial three-month gain of 21.24%. The company's Earnings Per Share (EPS) stand at 12.1, painting a positive picture of its financial health. But the question that arises is, is the stock fairly valued? This article aims to answer this question by providing an in-depth analysis of PulteGroup's valuation. So, let's dive in.
Understanding PulteGroup
PulteGroup Inc is one of the largest homebuilders in the United States, with operations spanning across 42 markets in 24 states. The company primarily builds single-family detached homes, catering to entry-level, move-up, and active-adult buyers. PulteGroup also offers mortgage financing and title agency services through its financial services segment. The company is headquartered in Atlanta and has a market cap of $17.90 billion. Comparing the stock price of $81.4 with the GF Value of $77.27, it appears that PulteGroup (PHM, Financial) is fairly valued.
Deciphering the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. This value is derived from historical trading multiples, GuruFocus adjustment factors based on past returns and growth, and future business performance estimates. The GF Value Line on the summary page provides an overview of the stock's fair value. 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.
Given PulteGroup's current price of $81.4 per share and a market cap of $17.90 billion, the stock appears to be fairly valued. This means that the long-term return of its stock is likely to be close to the rate of its business growth.
Assessing PulteGroup's Financial Strength
Investing in companies with low financial strength can result in permanent capital loss. Therefore, investors must carefully review a company's financial strength before deciding whether to buy shares. PulteGroup has a cash-to-debt ratio of 0.74, which ranks better than 55.14% of 107 companies in the Homebuilding & Construction industry. GuruFocus ranks PulteGroup's financial strength as 9 out of 10, suggesting a strong balance sheet.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. PulteGroup has been profitable 10 over the past 10 years, with a revenue of $16.90 billion and Earnings Per Share (EPS) of $12.1 in the past twelve months. Its operating margin is 21.38%, ranking better than 88.18% of 110 companies in the Homebuilding & Construction industry. Overall, PulteGroup's profitability is ranked 10 out of 10, indicating strong profitability.
One of the most important factors in the valuation of a company is growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. PulteGroup's average annual revenue growth is 22.8%, which ranks better than 84.47% of 103 companies in the Homebuilding & Construction industry. Its 3-year average EBITDA growth is 43.2%, ranking better than 79.17% of 96 companies in the industry.
Return on Invested Capital vs Weighted Average Cost of Capital
Comparing a company's return on invested capital (ROIC) to the weighted average cost of capital (WACC) is another method of determining its profitability. 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 9.39.
Conclusion
In summary, PulteGroup's stock appears to be fairly valued. The company's financial condition is strong, and its profitability is robust. Its growth ranks better than 79.17% of 96 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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