Shares of Pulte (PHM) jumped 0.3 % during today's morning session, bringing their 52 week performance to 92.0%. The stock seems to be undervalued in terms of traditional metrics, but in this day in age, we believe that a complete stock analysis should also take into account the company's strong growth indicators and mixed market sentiment.
PulteGroup, Inc., through its subsidiaries, primarily engages in the homebuilding business in the United States. The large-cap Consumer Discretionary company is based in Atlanta, United States and has 6,524 full time employees.
PHM's P/E Ratio Is Better Than the Sector Average
Compared to the Consumer Discretionary sector's average of 22.33, Pulte has a trailing twelve month price to earnings (P/E) ratio of 6.1 and an expected P/E ratio of 6.2. P/E ratios are calculated by dividing the company's share price by its trailing 12 month or forward earnings per share, which stand at $12.02 and $11.74 respectively.
Earnings represent the net profits left over after subtracting costs of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since Pulte's P/E ratio is lower than its sector average, we can deduce that the market is undervaluing the company's earnings.
Pulte Is Fairly Valued in Terms of Expected Growth
Another factor pointing to Pulte's value is its PEG ratio of 1.18. This is the stock's price to earnings ratio divided by its estimated earnings growth rate. If the resulting ratio is near or lower than 1 -- but higher than 0 -- its indicates that the company is faitly valued in terms of expected growth.
PHM Has an Average P/B Ratio
Traditionally, stock pickers used to focus primarily on finding issues that were trading significantly below their tangible asset value, to guarantee themselves a margin of safety. But such an approach would screen out many valuable securities because many profitable businesses -- especially those that heavily leverage information technology -- simply do not have many tangible assets compared to more capital intensive companies.
Therefore, modern value investors tend to focus less on absolute price to book value (P/B) ratios. Instead of singling out stocks with a P/B ratio of less than 1, they will compare the target company against its peer group. For Pulte, the P/B value is 1.66 while the average for the Consumer Discretionary sector is 3.12.
PHM's Weak Cash Flow Generation Is Troubling
The table below shows that Pulte is not generating enough cash. A well run company will generally have cash flows that reflect the strength of its underlying business, and in Pulte's case, free cash flow is growing at an average rate of 0.0% with a coefficient of variability of 3062195172.6%. We can also see that cash flows from operations are evolving at a 0.0% rate, versus 0.0%:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cash Flow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2023-02-06 | 668,466 | -112,661 | 781,127 | -27.46 |
| 2022-02-07 | 1,004,021 | -72,781 | 1,076,802 | -41.56 |
| 2021-02-02 | 1,784,342 | -58,354 | 1,842,696 | 62.48 |
| 2020-01-30 | 1,076,002 | -58,119 | 1,134,121 | -24.76 |
| 2019-01-31 | 1,448,280 | -59,039 | 1,507,319 | 116.84 |
| 2018-02-07 | 663,077 | -32,051 | 695,128 |
Pulte's Margins Are Strong
If you buy a stock for the long run, you want the underlying business model to be profitable. Gross margins tell you how much profit the company generates compared to the cost of revenue, which is the cost directly related to providing Pulte's goods and services. Operating margins, on the other hand, tell you how much of these profits the company keeps after you take overhead into account.
Pulte's Gross Margins
| Date Reported | Revenue ($ k) | Cost of Revenue ($ k) | Gross Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2023-02-06 | 16,228,995 | -11,213,801 | 31 | 10.71 |
| 2022-02-07 | 13,926,882 | -9,975,974 | 28 | 3.7 |
| 2021-02-02 | 11,036,082 | -8,082,449 | 27 | 8.0 |
| 2020-01-30 | 10,212,957 | -7,684,798 | 25 | 0.0 |
| 2019-01-31 | 10,188,331 | -7,667,497 | 25 | 8.7 |
| 2018-02-07 | 8,573,250 | -6,595,601 | 23 |
Pulte's Operating Margins
| Date Reported | Total Revenue ($ k) | Operating Expenses ($ k) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2023-02-06 | 16,228,995 | -1,561,918 | 21 | 16.67 |
| 2022-02-07 | 13,926,882 | -1,377,184 | 18 | 12.5 |
| 2021-02-02 | 11,036,082 | -1,186,923 | 16 | 23.08 |
| 2020-01-30 | 10,212,957 | -1,175,107 | 13 | 0.0 |
| 2019-01-31 | 10,188,331 | -1,159,445 | 13 | 18.18 |
| 2018-02-07 | 8,573,250 | -1,010,870 | 11 |
Pulte's cost of revenue is growing at a rate of -0.0% in contrast to -15.4% for operating expenses. Sales revenues, on the other hand, have experienced a 0.0% growth rate. As a result, the average gross margins growth is -0.1 and the average operating margins growth rate is 11.6, with coefficients of variability of 10.6% and 24.3% respectively.
Pulte Benefits From Positive Market Signals
The market sentiment regarding Pulte is overwhelmingly positive. The stock has an average rating of buy and target prices ranging from $120.0 to $85.0. PHM is trading -24.69% away from its target price of $97.07. 5.3% of the company's shares are tied to short positions, and 95.3% of the shares are held by institutional investors.
| Date Reported | Holder | Percentage | Shares | Value |
|---|---|---|---|---|
| 2023-06-30 | Vanguard Group Inc | 12% | 25,788,510 | $1,885,140,041 |
| 2023-06-30 | Blackrock Inc. | 10% | 20,885,474 | $1,526,728,117 |
| 2023-06-30 | Putnam Investments LLC | 5% | 11,222,604 | $820,372,335 |
| 2023-06-30 | State Street Corporation | 5% | 10,304,408 | $753,252,209 |
| 2023-06-30 | Dimensional Fund Advisors LP | 3% | 7,080,919 | $517,615,168 |
| 2023-09-30 | Greenhaven Associates, Inc. | 3% | 5,702,018 | $416,817,507 |
| 2023-06-30 | FMR, LLC | 2% | 5,388,524 | $393,901,096 |
| 2023-06-30 | Geode Capital Management, LLC | 2% | 4,906,610 | $358,673,183 |
| 2023-06-30 | Lsv Asset Management | 2% | 4,348,706 | $317,890,401 |
| 2023-06-30 | AQR Capital Management, LLC | 2% | 4,134,790 | $302,253,142 |
