TRI Pointe Group (TPH): The outlook for homebuilding is excellent

Industry: Consumer Discretionary–Homebuilding; P/S = 0.76; PEG = 0.61

TRI Pointe Group (TPH: Current Price 11.92) engages in the design, construction and sale of single-family attached and detached homes in the U.S. TRI Pointe operates across eight states, including Arizona, California, Nevada, Washington, Texas, Colorado, Maryland and Virginia. In addition, TRI Pointe has acquired five homebuilders during the past five years.

TRI Pointe, headquartered in Irvine, California, was awarded 2016 “Builder of the Year” honors in Orange County, California and “Best Place to Work” in 2016.

TRI Pointe Group delivered disappointing third-quarter sales and earnings, which sent the stock down without a recovery. The soft results appear to be a one-time event. The stock has disappointed investors during the past several months, but the outlook for homebuilding is excellent. Sales and earnings growth is typically bumpy for companies in the home construction business, and TPI Pointe, as a small company, is prone to some short-term volatility.

Sales will likely climb 10% and EPS will rise 9% to $1.38 in 2017. Sales and earnings could exceed expectations if President Trump’s growth initiatives come to fruition, or if his tax cut plans are enacted. Tri Pointe’s income tax rate is 35%, substantially higher than the proposed new rate of 15% to 20%. I expect TPH to rise 90% to my Min Sell Price of 22.62 within two years. Buy at the current price.

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