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11-10-2023, 06:29 AM
Pulte is a US homebuilder. I last valued Pulte in June 2023 when it was trading at USD 73 per share. This was based on its cyclical Earnings Power Value.
Its share price began to go up and reached as high as USD 85 per share in Aug before declining to USD 73 per share today. Is this a buying opportunity now?
While I would rate Pulte as financially sound, I would not consider it as a growth one.
During the latest Housing Starts cycle from 2005 to 2022 (peak-to-peak), there was hardly any growth in Pulte's revenue. This was despite several acquisitions in 2016, 2019, and 2020.
My EPV of Pulte over the cycle on a conservative basis was USD 34 per share. (Scenario 1 in the infographic). The crux of my valuation is that there is no growth in the long-term annual Housing Starts.
![[Image: Pulte-2023.png]](https://i.postimg.cc/63qfpqtZ/Pulte-2023.png)
Even if you assumed that there is a 1/3 increase in the long-term annual Housing Starts, my analysis showed that there is not enough margin of safety since it would take time to reach this increased level. (Scenario 2 in the infographic)
There is only a margin of safety if you assumed that Pulte is a non-cyclical company and that the past 2 years’ performance represented its future. This is not a realistic view given the evidence presented. (Scenario 4)
For more insights about US companies, go to “My 39 Non-Bursa stocks that can make money”
Its share price began to go up and reached as high as USD 85 per share in Aug before declining to USD 73 per share today. Is this a buying opportunity now?
While I would rate Pulte as financially sound, I would not consider it as a growth one.
During the latest Housing Starts cycle from 2005 to 2022 (peak-to-peak), there was hardly any growth in Pulte's revenue. This was despite several acquisitions in 2016, 2019, and 2020.
My EPV of Pulte over the cycle on a conservative basis was USD 34 per share. (Scenario 1 in the infographic). The crux of my valuation is that there is no growth in the long-term annual Housing Starts.
Even if you assumed that there is a 1/3 increase in the long-term annual Housing Starts, my analysis showed that there is not enough margin of safety since it would take time to reach this increased level. (Scenario 2 in the infographic)
There is only a margin of safety if you assumed that Pulte is a non-cyclical company and that the past 2 years’ performance represented its future. This is not a realistic view given the evidence presented. (Scenario 4)
For more insights about US companies, go to “My 39 Non-Bursa stocks that can make money”