LGI Homes
Discovery Club, by Ken Kavula, Subscriber October 31st, 2016
LGIH is one of the nation’s fastest growing homebuilders. It was founded in 2003 in Texas and has been profitable every year since delivering over 11,000 homes.
Manifest Investing has always tried to fill its database not only with the large, widely-traded companies like those in the S&P 500 or the companies that are featured in the Value Line Main Edition but also has tried to make sure that smaller companies that do not receive as much coverage and companies with a shorter history of public trading are included as well.
In the last few years, we have noticed that many companies have disappeared from the listings due to acquisition, merger or being taken private. This column is the beginning of a concerted effort to replenish the database with some company names that are not widely followed by the analyst community. Each month, for the next year or so, we will add at least 10 names to the Manifest Investing database and we will feature one of these new additions in an article. These companies will have widely ranging Quality Rankings, earnings stability numbers and financial situations. We hope, however, that as these companies grow, some of them will become very desirable to the investors in our community and that discovering some of these newer ideas before the rest of the analyst community might help boost the value of our typical subscriber’s portfolio.
This month we are featuring LGI Homes (LGIH). LGI is one of the nation’s fastest growing homebuilders. It was founded in 2003 in Texas and has been profitable every year since delivering over 11,000 homes. Focusing on entry level home buyers, the company has built fifty communities in thirteen markets across eight states. Recently growth has accelerated with a 127% increase in communities since 2013. LGI owns and controls over 23,000 empty lots and in the last fiscal year closed on 2,458 homes representing revenue of $454 million.
LGI Homes (LGIH) Analysis. This emerging homebuilder has an elevated growth rate and solid projections for 2016-2017. Keep in mind that this track record does not include a recession. Profitability is steady and the price has dropped recently.
LGI builds homes with margins that place it in the top three in the homebuilding industry. Its focus on entry level buyers is complemented by marketing to renters in the immediate areas of its communities. LGI has weekly distribution of approximately 400,000 direct mailings to renters within 25 miles of its communities and has minimal reliance on realtors, relying instead on sales representatives that staff offices open seven days a week in each of its active communities. LGI prides itself on providing move-in ready homes for its buyers.
LGI plans to grow organically in the next 3 to 5 years by expanding in its existing markets and selectively expanding to new markets with large percentages of younger adults that are currently renting. The size of the young, home-buying generation, the largest in US history, also provides demographic tailwinds for the company. The company also plans to expand its product line beyond the current entry level home and is open to acquisition where appropriate.
Check out the new Manifest company research page for LGI Homes. With a current quality rating of 30 and a Value Line financial strength of C++, LGI Homes is clearly not a core holding (yet) and should be analyzed and monitored as you would any non-core holding. It has phenomenal growth, however, and a very interesting model for selling its inventory. LGIH might be the kind of company some of you would add to a non-core portfolio and others might place on a “Stocks to Watch” kind of list.
Please monitor the weekly “This Week at MANIFEST” postings on the Forum as additional companies are added via the Discovery Club almost every week. Recently added to the Manifest database were these companies: Natures Sunshine Products (NATR), Superior Uniform Group (SGC), Silicon Motion Technology (SIMO), Starrett (SCX), Simulations Plus (SLP), China Distance Education (DL) and Swatch (SWGAY).
Check them out and perhaps you will find one that appears to be a diamond-in-the-rough or one you think is the next BIG idea that will transform the world!
Ken Kavula
Ken Kavula is a retired educator and successful long-term investor. Ken has served in a number of leadership positions for the National Association of Investors and is active in four investment clubs. Welcome to the Clubhouse. Subscribers are invited to share their favorite experiences, suggest best practices and most importantly, let us know “What’s on your mind?” What topics and questions do you have? We all get better when we do this together. Email Ken at kkavula1@comcast.net.