The Battle of the Big Builders: D.R. Horton, Inc. (DHI), PulteGroup, Inc. (PHM)

Let’s see how D.R. Horton measures up fundamentally to its rivals – the three other largest homebuilders in the United States.

Source:Yahoo Finance

Based on price to earnings and sales valuation, it appears that NVR is the cheapest. However, D.R. Horton is the cheapest based on its price-to-book ratio and past ROE performance. It’s also worth noting that big builders increase take on a lot of debt to expand, since their financial arms often act as first party lenders.
But sometimes the stock’s fundamentals don’t tell the whole story. We should take a look at the next set of charts, which compare the revenue and earnings growth trajectories of these four competitors.

Revenue slid sharply due to the housing crisis and subsequent aftershocks, but all four homebuilders began posting positive revenue growth in mid-2011. But what about actual profits?

Notice how the diluted EPS growth chart only starts around the third quarter of 2012. Prior to that, the four companies all posted negative earnings. On this scale, however, D.R. Horton’s growth is the least impressive. D.R. Horton’s strengths include its comparatively lower debt levels, strong past performance and low price-to-book ratio. However, its earnings growth, crimped by operating margins, are the least impressive of its industry peers.

Investing in big builders such as D.R. Horton is a smart move, despite the run-up in their stock prices. However, investing in this industry is a macro play as much as it is a micro one. If you firmly believe that the U.S. job market is improving, interest rates will stay low, and the standoff between pre-owned sellers and buyers will continue, then D.R. Horton and its peers deserve a place in your portfolio.

The article The Battle of the Big Builders originally appeared on Fool.com and is written by Leo Sun.

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