One day after Meritage Homes stock popped as much as 10% on a huge earnings beat on its fiscal fourth-quarter results, another homebuilder -- this time, Beazer Homes (BZH 3.75%) -- is tumbling twice that amount in response to... also an earnings beat!
Last night after close of trading, Beazer Homes reported fiscal first-quarter 2020 earnings of $0.09 per share under generally accepted accounting principles (GAAP), where Wall Street had expected only $0.07. Sales for the quarter likewise trumped expectations, $417.4 million to Wall Street's $410 million.
And yet, Beazer stock is down 20.1% as of 11 a.m. EST.
Let's dig into the numbers and see what they tell us.
CEO Allan P. Merrill said he was "very pleased with our first quarter results." In fiscal Q1, Beazer closed on 3% more home sales than in the year-ago quarter, and grew its "homebuilding revenue" by 4%, indicating that the homes Beazer built this year sold for higher prices than a year ago. Homebuilding gross margin on Beazer's sales held steady at 15.1%, while selling, general, and administrative costs declined by about 20 basis points to 13.3%.
And yet, although better than analysts had predicted, Beazer's Q1 net income still declined 62% year over year.
That precipitous drop-off in profits may explain investors' decision to sell Beazer stock today. But Beazer also noted that it grew its orders for new housing by better than 28% in Q1, and as a result, the dollar value of homes in backlog has increased by 23%. On continued steady profit margins, that seems to foreshadow greater profits growth in the year ahead.
Although I admit Beazer seems a riskier bet than Meritage -- if for no other reason then because Beazer stock is still unprofitable on a trailing-12-months basis, while Meritage is profitable -- the stock's strong growth prospects combined with its low price-to-book valuation (0.8 times) suggests to me that this stock could bounce back from today's sell-off in relatively short order.