NVR- financially sound but no margin of safety

[i4value]

NVR is a US home builder. I would rate NVR as financially sound, with strong performance over the past cycle - 2005 to 2022 (peak-to-peak).

But I would not consider it a high-growth one. NVR is a low-growth cyclical company as its performance is tied to US Housing Starts.

My valuation of NVR over the cycle showed that there is no margin of safety. The crux of my valuation is that there is no long-term annual average Housing Starts growth. Refer to Scenario 1 in the infographic.



Even if you assumed that there is a 1/3 increase in the long-term annual average Housing Starts as per Scenario 2, my analysis showed that there is only a 12% margin of safety if I assumed that it would take 5 years to reach this increased level.

There is also not enough margin of safety if you assumed that NVR is a non-cyclical company and that the past 2 years’ performance represented its future. Refer to Scenario 3 in the infographic

For more insights into US homebuilders go to “Are these outstanding stocks - what to consider? (Other Stock Exchanges)”