Meritage Homes Corp (MTH), Standard Pacific Corp. (SPF), D.R. Horton, Inc. (DHI): Is Now a Good Time to Invest in Residential Construction Companies?

D.R. Horton’s hidden potential

D.R. Horton, Inc. (NYSE:DHI) manufactures a variety of homes that have price tags in the range of $100,000 to $600,000. The company has solid market penetration in the American middle class markets. The company’s focus on the middle income groups might be a sign of increasing profitability in the coming future as the financial meltdown of 2008 was particularly hard on the middle income groups.

The company has reported strong financial metrics since 2011. D.R. Horton, Inc. (NYSE:DHI)’s current EPS of $2.79 is 11 times higher than its EPS two years ago. I believe the company has room for additional growth as optimism spreads for a complete housing recovery. I say this because in the year 2006, D.R. Horton, Inc. (NYSE:DHI)’s revenue was as high as $15 billion. This means that the current revenue of the company is only one-third of its maximum revenue potential. Thus, the current economic trends are ripe for D.R. Horton, Inc. (NYSE:DHI).

Other news impacting the industry

Mortgage rates in the United States were up 0.5% in the last week of June. Mortgage rates are the bloodline for home sales in the United States. I believe the recent increase in the mortgage rates would not hurt the growing demand for homes because from a historical perspective, they are still very low. The increase in the mortgage rates, in my opinion, signals the growing optimism for the industry.

Another important fact here is that the velocity of the industry turnover is improving. This means that newly constructed homes, on average, are sold off much more quickly than before.

Final takeaway

After a long time, the real estate sector is showing signs of growth. Companies in the residential construction industry have immediately become star investments. I analyzed three companies in the industry with slightly different types of operations. All three of them have great outlook and would fit nicely in the portfolio of investors.

The article Is Now a Good Time to Invest in Residential Construction Companies? originally appeared on Fool.com and is written by Awais Iqbal.

Awais Iqbal has no position in any stocks mentioned. The Motley Fool recommends Meritage Homes. Awais is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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