When it comes to investments, it’s important to have patience as they often take time to yield significant returns. However, there are exceptions, such as special situations. For traditional long-term investors, it’s best to hold onto investments for years. Occasionally, though, we get lucky and see rapid growth in the companies we invest in. One such example is Taylor Morrison (NYSE:TMHC), a homebuilder that has shown promising signs of turnaround despite mixed financial results. Even though the stock has already experienced a substantial increase, it still appears undervalued compared to similar firms. Therefore, it may be wise to hold onto the stock for potential further upside.
Mixed Performance and Signs of Turnaround
In a previous article published in April of this year, we discussed Taylor Morrison’s potential for growth, acknowledging the challenges facing the housing market at the time. Despite these challenges, the stock seemed attractively priced, making it a favorable risk-reward opportunity for long-term investors. Since then, the stock has outperformed the broader market, increasing by 23.3% compared to the S&P 500’s 7.9% jump.
Financial data covering the first and second quarters of the 2023 fiscal year offers insights into the company’s performance. While the number of home closings decreased slightly, Taylor Morrison experienced an increase in average closing prices. Overall, the company’s revenue remained robust. However, there was a decline in net income due to factors such as decreased home closings gross margin and increased sales and marketing costs. Despite these challenges, operating cash flow showed significant growth.
An important metric to consider is the company’s backlog, which experienced a significant decline over the past year. However, the number of new orders has increased, particularly in the most recent quarter. Although the average price of ordered properties has decreased year over year, this positive trend suggests a brighter future for Taylor Morrison.
When analyzing the company’s financial performance and valuation, Taylor Morrison appears undervalued compared to similar firms, making it an attractive investment opportunity. With the recent improvement in net new orders and potential for further upside, a ‘buy’ rating seems appropriate for investors.