November 29, 2017

LGIH – Expectations for record-low profitability are too bearish, implying that, despite the potential for near-term headwinds, long-term equity upside remains warranted


  • LGI Homes, Inc. (LGIH:USA) currently trades below corporate averages relative to UAFRS-based (Uniform) Earnings, with a 14.8x Uniform P/E, implying bearish expectations for the firm. While negative management sentiment suggests the potential for near-term headwinds, market expectations are overly bearish in the context of the firm’s historical performance, and current homebuilding tailwinds, implying long-term equity upside remains warranted
  • Specifically, although management appears concerned about growth constraints, the sustainability of housing demand, and their ability to maintain adjusted gross margins at historically-average levels, market expectations for record-low Uniform ROA are still too bearish. Should the firm simply maintain Uniform ROA at current levels, multiple expansion and equity upside would be warranted

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