This homebuilder is enjoying a busy housing market, and beat analysts’ earnings estimates by $0.07 last quarter.
LGI Homes, Inc. (LGIH)
From Validea Hot List Newsletter
Strategy: Growth/Value Investor
Based on: James P. O’Shaughnessy
LGI Homes, Inc. (LGIH) is a homebuilder and land developer. The company is engaged in the design, construction, marketing and sale of new homes in markets in Texas, Arizona, Florida, Georgia, New Mexico, South Carolina, North Carolina, Colorado, Washington and Tennessee. The company operates through five segments: the Texas division, the Southwest division, the Southeast division, the Florida division and the Northwest division.
MARKET CAP: PASS: The first requirement of the Cornerstone Growth Strategy is that the company has a market capitalization of at least $150 million. This will screen out the companies that are too illiquid for most investors, but still include a small growth company. LGIH, with a market cap of $1,518 million, passes this criterion.
EARNINGS PER SHARE PERSISTENCE: PASS: The Cornerstone Growth methodology looks for companies that show persistent earnings growth without regard to magnitude. To fulfill this requirement, a company’s earnings must increase each year for a five-year period. LGIH, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 0.50, 1.07, 1.33, 2.44 and 3.41, passes this test.
PRICE/SALES RATIO: PASS: The Price/Sales ratio should be below 1.5. This value criterion, coupled with the growth criterion, identify growth stocks that are still cheap to buy. LGIH’s Price/Sales ratio of 1.39, based on trailing 12-month sales, passes this criterion.
RELATIVE STRENGTH: PASS: The final criterion for the Cornerstone Growth Strategy requires that the Relative Strength of the company be among the top 50 of the stocks screened using the previous criterion. This gives you the opportunity to buy the growth stocks you are searching for just as the market is embracing them. LGIH, whose relative strength is 94, is in the top 50 and would pass this last criterion.
John Reese, Validea Hot List Newsletter, www.validea.com, 877-439-0506, December 1, 2017