For a business that is supposed to be relatively seasonal and cyclical, NVR (NYSE:NVR) has been enjoying an impressive run of growth. Not only did the company deliver impressive top- and bottom-line expansion, but it also showed positive trends on just about every operating metric. If there was one thing to critique, it's how management is dividing up the benefits of these boom times. 

Let's take a look at the company's most recent earnings report, the curious case of its recent share count, and what investors should make of the situation.

A row of newly constructed townhomes

Image source: Ryan Homes, a division of NVR.

By the numbers

Metric Q1 2018 Q4 2017 Q1 2017
Revenue $1.49 billion $1.78 billion $1.25 billion
Net income $166 million $124.7 million $102.9 million
Diluted EPS $39.34 $28.88 $25.12

Data source: NVR earnings release. EPS = earnings per share.

NVR is selling a lot of homes right now, as evidenced by the 17% uptick in revenue compared to this time last year. Even more surprising is that revenue grew despite the average selling price per new settlement dropping ever so slightly to $382,400. Across every region, the company saw strong new settlement (closed sales) and new growth. For the quarter, new orders outpaced settlements by 33% and the new order cancellation rate dropped to 14%. These numbers seem to suggest that we should likely expect to see even further gains throughout the rest of the year. 

The only figures that didn't improve were the average selling price for new orders and the average selling price of orders in backlog, which dropped to $378,200 and $381,700, respectively. That may not necessarily be a bad thing, though, as many homebuilders are now looking to target younger first-time homebuyers as a large swath of potential buyers come to market.

Chart of NVR settlements by region for Q1 2017, Q4 2017, and Q1 2018. Shows year-over-year gains for all four regions.

Data source: NVR earnings release. Chart by author.

Gains from the new tax rate helped NVR's recent results even more than the uptick in revenue. The reduction in the corporate tax rate boosted NVR's net income margin 290 basis points to 11.1%. 

Management rewarding itself a little too much?

One interesting trend investors may want to follow with NVR is the company's share count and share repurchase programs. For decades, management has made share repurchases a core part of its value proposition to shareholders. While the company continues to repurchase shares -- it bought back 116,200 shares in the quarter for $357 million -- the company has also been handing out some rather generous stock option packages. As a result, those stock repurchases only resulted in a net reduction of 57,000 shares, less than half of what was purchased. 

NVR Average Diluted Shares Outstanding (Quarterly) Chart

NVR Average Diluted Shares Outstanding (Quarterly) data by YCharts.

Perhaps this is much ado about nothing. One of the things that has made NVR such a great investment in the homebuilding industry has been a stock ownership requirement, in which management owns four to eight times their annual salary in stock to ensure a long-term focus on shareholder returns. However, the company's 2018 equity incentive plan has the number of shares available for compensation equivalent to $825 million based on current share prices. That seems a bit generous -- even for one of the best homebuilders out there.

Full steam ahead in housing

This quarter's results are yet another sign that it's a good time to be a homebuilder, and it still looks like things are going to continue like this for a while. The inventory of homes for sale in the U.S. is only good to cover 3.6 months' worth of sales, which is down from the long-standing average of six months. There are a lot of signs pointing to the fact that the U.S. housing market is short on a supply of homes, which means there are ample opportunities for homebuilders to expand their offerings and grow sales. 

NVR has proven to be the best investment in the housing industry over the long haul thanks to management's focus on return on capital invested and a high level of insider ownership. So it's hard to fault management too much for doing what it has always done to grow shareholder value. From an individual investor's standpoint, though, it is a little bothersome to see so much cash going toward share repurchases have such little net effect on share count. Perhaps all that extra cash resulting from a lower tax rate will help to accelerate those share repurchases even more.