Overall Assessment
I am bullish on Tri Pointe Homes (TPH). The Tri Pointe Homes Q2 2021 earnings report delivered strong results, including records for home sales revenue, pre-tax profit, and the value of the backlog. Management reported familiar themes of strong demand and constrained inventories across demographics and geographies. Margins improved as the company once again throttled sales in order to benefit more from the upward trend in prices and to recapture increasing construction costs. Still, strong demand has prevented the company from reaching its typical 2 to 4 spec builds per community even though they are building as fast they can. Consistent with the rest of the industry, starts are slowing down given issues in the supply chain. Going forward, the company expects to hit its stride with a normalized sales pace of 3 to 4 homes per community per month: “This pace optimizes our operations and creates efficiencies in the sales, construction and delivery process.”
Tri Pointe Homes increased price guidance given the strong demand despite price sensitivities in some markets. The increase in price guidance brings average selling price (ASP) for Q3 and the year more in-line with prices from a year ago. I am not expecting the company to push prices much further in 2022. So if costs for labor, materials, and other supply chain issues prove more than “transitory,” next year could feature some margin compression. This prospect is likely one of the drivers causing the stocks of home builders to lag the general S&P 500 (SPY) in recent months.
Ramping production capacity will be key to unlocking more growth in coming quarters. Tri Pointe Homes expects double-digit percentage growth in community count for 2022 and 2023.
Stock Performance
- One day after reporting Q2 earnings: +3.2%
- From the close after Q1 earnings to the close before Q2 earnings: -4.0%
- From the close after Q2 2020 earnings to the close before Q2 2021 earnings: +27.1%
- For the year until the close before earnings: +20.1%; compare to +23.4% for the iShares Dow Jones US Home Construction ETF (ITB)
While I am bullish on TPH, I am holding out for the seasonally strong period for home builders before I start buying. The housing market normalized, so I also expect stock performance to maintain typical seasonal performance. If TPH pulls back to support at its 200-day moving average (DMA) (the blue line above) ahead of that time, I will likely buy early.
Valuation (from Yahoo Finance)
- 12-month trailing P/E: 7.7
- 12-month forward P/E: N/A
- Price/book: 1.2
- Price/sales: 0.8
- Short % of float: 4.6%
Year-Over-Year Performance (3 months ended June 30, 2021 and quarter-ending values)
- Home sales revenue: +32%
- Net new home orders: +22%
- New homes delivered: +26%
- Average selling price of homes delivered: +5%
- Net income: 109%
- Homebuilding gross profit margin: 24.6% up from 21.6%
- Net income per diluted share: +133%
- Ending backlog value: +50%
- Cash and cash equivalents: -10%
- Ratio of net debt to capital: from 24.4% to 25.7%
Year-Over-Year Performance (6 months ended June 30, 2021)
- Total revenue: +27%
- Net new home orders: +21%
- New homes delivered: +22%
- Average selling price of homes delivered: +4%
- Net income: 113%
- Homebuilding gross profit margin: from 24.1% to 27.3%
Year-Over-Year Guidance and targets
- Homes delivered Q3: 1,450 to 1,550, +11.3% to +19.0%
- ASP Q3: $620-630K, -2.2% to -0.1%
- Gross margin Q3: 23.5% to 24.5%, +140 basis points (bps) to +240 bps
- Active selling communities 2021: 120 to 130, +2.1% to +10.6%
- Homes delivered 2021: 6,000 to 6,300, +17.1% to 23.0%
- ASP 2021: $625 to $635K, -0.1% to +0.6%
- Gross margin 2021: 23.5% to 24.5%, +150 bps to +250 bps
Earnings sources
- Q2 2021: June 27, 2021
- Q1 2021: April 22, 2021
- Q4 2020:: February 18, 2021
- Q3 2020: January 7, 2021
- Q2 2020: June 24, 2020
- Seeking Alpha Transcripts: Tri Pointe Homes, Inc. (TPH) CEO Douglas Bauer on Q2 2021 Results – Earnings Call Transcript
Be careful out there!
Full disclosure: no positions