Is PulteGroup Inc (PHM) Fairly Valued? An In-Depth Analysis

Despite a daily loss of 4.57%, PulteGroup Inc (

PHM, Financial) has seen a 3-month gain of 13.58%, boasting an Earnings Per Share (EPS) of 12.1. The question we aim to answer here is: Is PulteGroup’s stock fairly valued? In the following analysis, we will delve deep into the financials of PulteGroup, exploring its intrinsic value and potential for investors.

A Snapshot of PulteGroup Inc

PulteGroup Inc is one of the largest homebuilders in the United States, operating in 42 markets across 24 states. The company primarily builds single-family detached homes, catering to entry-level, move-up, and active-adult buyers. PulteGroup also offers mortgage financing and title agency services through its financial services segment. The company is headquartered in Atlanta and has a market cap of $17.30 billion.

Comparing the stock price of $78.79 to the GF Value of $77.32, PulteGroup’s stock appears to be fairly valued. But let’s delve deeper into the company’s value, starting with a look at its income breakdown:

Understanding the GF Value

The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on three factors:

1. Historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) at which the stock has traded.
2. GuruFocus adjustment factor based on the company’s past returns and growth.
3. Future estimates of the business performance.

According to our method, PulteGroup’s stock gives every indication of being fairly valued. If the stock’s share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. On the other hand, if the stock’s share price is significantly below the GF Value Line, the stock may be undervalued and have high future returns. As PulteGroup is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.

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Assessing PulteGroup’s Financial Strength

Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Therefore, it is crucial to carefully review the financial strength of a company before deciding whether to buy its stock. PulteGroup has a cash-to-debt ratio of 0.74, which is better than 56.19% of companies in the Homebuilding & Construction industry. GuruFocus ranks the overall financial strength of PulteGroup at 9 out of 10, indicating strong financial health.

Profitability and Growth

Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. PulteGroup has been profitable for 10 years over the past 10 years. During the past 12 months, the company had revenues of $16.90 billion and Earnings Per Share (EPS) of $12.1. Its operating margin of 21.38% is better than 88.89% of companies in the Homebuilding & Construction industry. Overall, GuruFocus ranks PulteGroup’s profitability as strong.

Growth is probably one of the most important factors in the valuation of a company. PulteGroup’s 3-year average revenue growth rate is better than 84.16% of companies in the Homebuilding & Construction industry. PulteGroup’s 3-year average EBITDA growth rate is 43.2%, which ranks better than 78.72% of companies in the Homebuilding & Construction industry.

ROIC vs WACC

Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. For the past 12 months, PulteGroup’s return on invested capital is 23.94, and its cost of capital is 9.57.

Conclusion

In conclusion, the stock of PulteGroup gives every indication of being fairly valued. The company’s financial condition is strong, its profitability is strong, and its growth ranks better than 78.72% of companies in the Homebuilding & Construction industry. To learn more about PulteGroup stock, you can check out its 30-Year Financials here.

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