Housing statistics continue to amaze with resilience. According to the numbers released by the National Association of Realtors, seasonally adjusted index for pending home sales rose 1.5% during March to 105.7. This is the highest level for the index in three years.
Market underestimating Toll Brothers Inc (NYSE:TOL)
Pennsylvania-based Toll Brothers Inc (NYSE:TOL) has a price to book value ratio of just 1.8, lowest among its peers. The stock has seen wild movements in the last six months, and has found strong momentum again on its journey north. The company is adequately levered, but not excessively laden with debt. Currently priced at 12 times its earnings, the stock is reasonably placed, but does not seem to factor the robust revenue growth we have seen in recent quarters. In the first quarter ended Jan. 31, the company posted a 31.9% growth in revenue to $424.6 million.
As a result, the company posted a profit of $4.4 million compared to a loss of $2.8 million. The results came slightly below Street expectations, which caused selling pressure. However, it is worth noting that the top line growth is intact — enough for analysts at Barclays to up the price target to $41 and rating to overweight.
Earnings potential almost free
Like most other home builder stocks, Standard Pacific Corp. (NYSE:SPF) has also seen a sharp appreciation in its stock price. Having gone up 28% so far this year, the stock is close to its 52-week high. However, it still trades at a price to earnings multiple of 7.3, which is certainly not very high. Another multiple indicating tremendous undervaluation is the price to book value ratio which is currently at 1.55. This means the company’s valuation is at a premium of 55% to fair value of its hardcore assets.
Given the way stock price has gone up in recent months, this is not very high, and almost feels like the business is going at net asset value. For 2012, the company posted vastly improved financial results. Its revenue grew over 40% to $1.26 billion while gross margin improved to 19.7% from 18.4% in 2011. As a result, profitability stood at $531.4 million. There is little evidence so far to suggest that this trend of improved financial performance will be disrupted in 2013.
Enter NVR, Inc. (NYSE:NVR)
NVR, Inc. (NYSE:NVR) – a homebuilder which offers homes under Ryan Homes, Fox Ridge Homes, and Rymarc brands – has been a steady performer with a 33% gain in stock price over the last 12 months. The rally lost some of its momentum as the stock dropped 5.5% last month. However, it may be a boon for investors actively looking for value. What caused the recent drop is also interesting – the company missed analysts’ expectations even after posting a 74% growth in net income to $35 million for the quarter ended March 31.
Currently priced at 13.9 times its forward earnings, the company has a low debt equity ratio of 0.39. Another noteworthy factor which is likely to drive stock price is the company’s top line growth, which maintained its momentum despite a tough quarter. Revenue jumped to $770.3 million during the quarter, up 28%.
Foolish bottom line
As long as homebuilders continue to demonstrate revenue growth, prospects of boosting the bottom line remain bright and these companies have just showed they are capable of maintaining higher top line. As such, their shares can still go higher even after performing well so far this year.
The article Undervalued Housing Stocks With Potential of Becoming Superstars originally appeared on Fool.com and is written by Jacob Wolinsky.
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