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Why PulteGroup Shares Tanked

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of PulteGroup (NYSE: PHM  ) were looking shabbier today, falling as much as 13% after its earnings report didn't stack up.

So what: The homebuilder missed on both bottom and top lines as the boom from the housing recovery wasn't strong enough to meet analysts' high expectations. Adjusted earnings per share came in at $0.26, below estimates at $0.30, while revenue increased 19% to $1.28 billion, but experts had called for $1.39 billion. Pulte's backlog value increased 25%, but new orders for the quarter actually fell 12% from a year ago. Still, CEO Richard Dugas saw nothing but positives in the market, saying the recovery "continues to gain momentum" and that the rise in interest rates seems to have had "little effect" on demand. Pulte also initiated a $0.05 quarterly dividend.

Now what: Today's drop seems to be more a consequence of high expectations rather than a failure on Pulte's part. Homebuilder stocks tend to be volatile as their earnings are difficult to predict. Nearly all signs are moving in the right direction for Pulte, and even though orders dropped, they are still coming in faster than the company can build homes, as evidenced by the uptick in the backlog. Today's drop may have been warranted after the misses but I see no reason to sell at this point.

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