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  • Writer's pictureOwen

LGI Homes: A Homebuilding McDonald's?

Summary

  • Why fears of a housing demand collapse that are hurting all homebuilding stocks aren't based on fundamentals, despite interest rate rises.

  • We consider and try to understand LGI Homes' strange post-earnings slump last quarter.

  • We take a deep dive into the seasonality and cycles of LGI Homes' sales.

  • Why LGI Homes' unique model makes us think it is an opportunity like buying a part of McDonald's growth profile from the 1970s.


We have discussed LGI Homes before. This time we look closer at macro-economic concerns that seem to be driving the poor recent stock-market performance of the entire sector despite strong sales and profits. We also look closer at LGI Homes' recent performance to see if it stands up and then consider whether its unique approach justifies a multi-year buy and hold approach.


Is the housing market about to slump?


Rising interest rates and fears of a market slump have pushed down building stocks this year by 8.3% compared to a 3.3% gain for the S&P 500. Everyone is trying to avoid the mistakes of the last cycle.


Source: Yahoo Finance


But this cycle, at least in home-building, has very different fundamentals from the housing slump. Dwelling construction, as mentioned above, hasn’t surged. Last cycle single-family dwelling housing starts have only just recovered to 1990 levels. That’s below the long-term average since the 50s in a country that has doubled from 150 million people to more than 300 million now.


That’s hardly a raging oversupply market.


See the rest of the report on Seeking Alpha here:

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