Cavco Industries Inc.: A Compounding Small Cap Stock Cavco Industries Inc.: A Compounding Small Cap Stock

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Big Wall Street players have been padding their portfolios with Cavco Industries Inc. CVCO. Firms such as T. Rowe Price, Millennium Management, and Pacer Advisors have been bulking up their CVCO positions, signaling some serious confidence in this little titan. Pacer Advisors upped its CVCO shares by a whopping 66.64% as of 9/30, snagging a total of 122,917 shares valued at nearly $37.4 million dollars at current market prices. All this investor love points to something hot and happening at Cavco Industries Inc.

In November, Cavco Industries Inc. released its earnings for the second quarter of fiscal year 2024, and while the numbers weren’t raining cash, management’s moves were still money. Despite facing a 21.7% dip in net revenue to $452 million dollars in the second quarter of FY24 compared to the same period last year, management returned nearly $47 million to shareholders through share repurchases. This move shows the company’s solid capital allocation focus, putting shareholders in pole position. CEO Bill Boor highlighted the ongoing struggles in the housing market, but the long game remains bright with plans for stronger partnerships, innovative products, and enhanced customer experience. It’s a hustle, not a stumble, and Wall Street knows it.

Cavco Industries Inc., with its roots in Phoenix, Arizona, is a heavyweight in the factory-built home game. This legacy extends back to 1965 before landing under its current name on June 30, 2003. Cavco manufactures a variety of factory-built homes including manufactured homes, park model RVs, vacation cabins, and commercial structures marketed under various brand names. With 29 production lines in the U.S. and another two in Mexico, the company caters to a wide market across 48 states and Canada, with a big chunk of its 64 retail stores claiming Texas turf. Under the hood, Cavco’s finance subsidiary, CountryPlace Acceptance Corp., offers mortgage services approved by major national mortgage associations, with its insurance arm, Standard Casualty Company, dealing in property and casualty coverage for manufactured homes across the southwestern U.S. The recent acquisition of Solitaire Homes has expanded the company’s footprint south of the border, giving its Southwest game a serious power-up.

These are exciting times in the manufactured housing industry, and Cavco Industries has a solid seat at the table. With growth in new single-family home sales and a keen eye on affordable housing solutions, especially for specific groups like Millennials and older adults, the industry is revving up for the future. It’s not all sunshine and rainbows, though, and Cavco is all in on the competitive game. But the company is holding its ground and revving the engines, especially in the face of economic headwinds like varying employment numbers, consumer confidence, and financing availability.

When it comes to fat cats steering the ship at Cavco Industries, they’re doing things just right. While some might grumble about the lack of cash dividends, it’s actually a boss move. A compounder like Cavco should prioritize reinvesting back into the business, especially when it can rake in capital returns like a boss. And the cherry on top? Board-approved share repurchase programs worth a cool $100 million dollars show they’re not shy about putting money where their mouth is. It’s a reel ’em in, not throw ’em out kind of play, bringing real value to shareholders given Cavco’s eye-poppingly low float of around 8.3 million shares.

When it comes to keeping the bigwigs happy, Cavco Industries is firing on all cylinders. Management incentives are tied to the company’s performance, ensuring that everyone’s riding the same wave. Short-term cash bonuses and long-term equity compensation are the ticket to the same party, making sure everyone’s grinding toward the same goals. All this shareholder and management love story is backed by Cavco’s solid ability to bring in the dough efficiently, pulling in a whopping Return on Equity of 20% and a Return on Invested Capital of 21.4%. That WACC? A smooth 10.2%. It’s a club where the good times keep on rolling, and everyone’s invited to watch the coins spin!

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