Fast growth in sales hasn’t translated to stock gains for New Home Co.
The Aliso Viejo-based homebuilder (NYSE:NWHM) ranks third among Orange County’s fastest-growing large public companies with two-year revenue growth of nearly 60% to $760 million for the 12-month period ending June 30.
A year ago, New Home ranked first among large public companies here with 207% two-year growth to $769 million.
Company sales in 2017 and 2018 were boosted by some big-dollar communities getting built out, including a pair of developments in Newport Coast’s Crystal Cove community, where homes topped $7 million in some cases.
The company’s pivoted to building more affordable offerings since then, and last month opened its first big master-planned development in the Inland Empire, Corona’s 275-acre Bedford project.
The strategy change was reflected in part in New Home’s third-quarter earnings report last week.
Quarterly revenue of $159.1 million was up less than 1% from year-earlier levels.
The quarter saw “a 32% decline in average selling price to $922,000 as we delivered more affordably priced homes during the quarter,” New Home noted in its earnings announcement.
Net income for the quarter was $2.5 million, a 42% decline from year-earlier levels.
Shares in the company—which have been on a downswing for much of the year—were largely unchanged on the earnings report, which came during an increasingly challenging time for the homebuilding industry (see story, page 1).
New Home had a market value of about $155 million as of press time. Shares are down nearly 45% over the past year.
The depressed price isn’t unnoticed by Chief Executive Larry Webb, who last week addressed “the recent weakness in our stock” and current market conditions on the company’s call with analysts.
“We realize that we are a company in transition and that our path to better profitability and more consistent earnings has been a slow process, but I believe that there is significant value embedded in our company, which is being underappreciated,” Webb said during the conference call.
Of note, the company’s market value “compares to a full backlog at the end of the third quarter of $311 million, or roughly two times our market capitalization,” Webb said.
“Our stock is currently trading at 0.6 times book value,” he noted. It’s a valuation “that we believe represents a very positive long term opportunity for the investment community.”
Buybacks or Land?
New Home is putting its money behind that belief; it has bought back nearly 625,000 shares of the company since May, a nearly $5 million investment. That represents about 3% of New Home’s outstanding shares.
“I really am not frustrated by where our stock is,” Webb said. “I think it represents an opportunity.”
The company has the ability to buy back another $9 million in its stock; Webb said the company’s debating whether to put that money into the company or in new land deals.
“While we continue to see attractive land deals in our market, we’re actively weighing potential land investments against further share repurchases, given the value we see in our existing land holdings, relative to today’s stock price,” he said.
California Tax
New Home builds the bulk of its homes in California. Webb said that his company is being punished by Wall Street when the state shows any signs of housing or economic weakness.
“People are making way too many overgeneralizations about California as a whole,” Webb told analysts. “Like all markets, our business is submarket by submarket, location by location.”
Alan Ratner, an analyst with housing research firm Zelman & Associates in New York, attributes the company’s depressed stock price in part to its relatively low profit margins, now in the 14% to 15% range.
Other builders, such as Miami-based Lennar Corp., currently have profit margins in the 20% range.
The lower margin gives New Home less room for leeway and for the ability to offer buyer incentives, such as in the case of a downturn in California’s housing market, Ratner suggested in the conference call.
They “just don’t have a large buffer on the profitability side,” he said.
