PulteGroup trades at $129.25 and has moved in lockstep with the market. Its shares have returned 6.7% over the last six months while the S&P 500 has gained 7.7%.
Is now the time to buy PulteGroup, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Is PulteGroup Not Exciting?
We're sitting this one out for now. Here are three reasons we avoid PHM and a stock we'd rather own.
1. Backlog Declines as Orders Drop
Investors interested in Home Builders companies should track backlog in addition to reported revenue. This metric shows the value of outstanding orders that have not yet been executed or delivered, giving visibility into PulteGroup’s future revenue streams.
PulteGroup’s backlog came in at $6.23 billion in the latest quarter, and it averaged 8.2% year-on-year declines over the last two years. This performance was underwhelming and shows the company is not winning new orders. It also suggests there may be increasing competition or market saturation.
2. Revenue Projections Show Stormy Skies Ahead
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect PulteGroup’s revenue to drop by 6.6%, a decrease from its 10.4% annualized growth for the past five years. This projection doesn't excite us and indicates its products and services will see some demand headwinds.
3. EPS Growth Has Stalled Over the Last Two Years
While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.
PulteGroup’s flat EPS over the last two years was worse than its 2.3% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
PulteGroup’s business quality ultimately falls short of our standards. That said, the stock currently trades at 12.1× forward P/E (or $129.25 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better stocks to buy right now. Let us point you toward the most entrenched endpoint security platform on the market.
Stocks We Like More Than PulteGroup
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