LGIH – Expectations for record-low profitability are too bearish, implying that, despite the potential for near-term headwinds, long-term equity upside remains warranted
August 29, 2018
- LGI Homes, Inc. (LGIH:USA) currently trades well below corporate averages relative to UAFRS-based (Uniform) Earnings, with a 9.9x Uniform P/E. 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 their ability to sustain performance seen in Q2 and the supply of lots and organic growth, market expectations for record-low Uniform ROA are still too bearish given the firm’s historical performance and current homebuilding tailwinds. Should the firm simply maintain Uniform ROA at current levels, multiple expansion and equity upside would be warranted