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This Homebuilder Stock Has Made Investors Rich. Could It Do the Same for You?

By Matthew Frankel, CFP® and Jason Hall - Updated Jun 22, 2021 at 9:31AM

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You might be shocked at this builder's returns. Can it continue?

NVR (NVR -0.51%), a leading homebuilder that is best known for its Ryan Homes brand, has delivered incredible returns for its investors over the years. In this Fool Live video clip, recorded on June 11, Fool.com contributors Matt Frankel, CFP, and Jason Hall, along with Chief Growth Officer Anand Chokkavelu, discuss why NVR is still one of their top picks for investing in the housing market. 

Matt Frankel: They are an asset-light homebuilder, they are a big builder. If you're not familiar with the name NVR, Ryan Homes is their primary brand that you've probably heard before. They use NVHomes, it's under their brand name that they use, but Ryan Homes is the big one. They have big presences in DC, Baltimore, Philadelphia, The Sun Belt, North Carolina, Florida, big builder. They got 6,300 new orders in the first quarter. I mentioned that Dream Finders (DFH -6.59%) gross margin is 14.9%, which itself is good for a homebuilder. NVR's is 19.7%. Big profit margins, their asset-light model. They provide a lot of details on it. They buy purchase options and they pay 10% of the land's price upfront. Worst-case scenario that 2007, 2008 market crash happens again. They are out 10% of their cost. Very great economics, they've built over 490,000 homes. I mentioned Dream Finders has done about 9,000. Four hundred and ninety thousand. Their homebuilding market is very fragmented, there's still a lot of room for them to grow. There are 48,000 homebuilders in America, including independent builders. NVR has about a two percent market share and it's one of the biggest. A lot of room for this business to still grow. I said it's what Dream Finders wants to be when it grows up, but NVR hasn't totally grown up yet. A lot of room to grow. A 22% annualized return for investors over the last 20 years. Big performance. One of the best performers that I know of in any housing, including the tech companies. I'm very bullish on NVR.

Anand Chokkavelu: I was hoping that you'd be telling the story in the form of a sonnet or something. You do love your NVR and we all do.

Matt Frankel: I ran out of breadth there one minute, I was talking so loud.

Jason Hall: I want to take 30 seconds to make three points about NVR that's important. It also does a big mortgage business, that it does pretty well. A lot of originations that have become a growing part of its income. Those options, it doesn't necessarily mean that it's out 10%, those options serve as leverage, because in a bad housing market or bad land market, the landowners still wants to sell that land, so it gives it leverage to still move forward with those deals, maybe at a more attractive price, instead of just everybody walking away. The third one is the share repurchases. Of all the companies we've talked about, these guys have been so aggressive with that, driving, buying stuff, like 25% of the shares float it's been repurchased over the past 10 years. They're going to keep doing it. Those are other three important things about how NVR can be a profitable investment.

Anand Chokkavelu, CFA has no position in any of the stocks mentioned. Jason Hall owns shares of NVR. Matthew Frankel, CFP owns shares of Dream Finders Homes, Inc. The Motley Fool recommends NVR. The Motley Fool has a disclosure policy.

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Stocks Mentioned

NVR, Inc. Stock Quote
NVR, Inc.
NVR
$4,359.73 (-0.51%) $-22.14
Dream Finders Homes, Inc. Stock Quote
Dream Finders Homes, Inc.
DFH
$12.62 (-6.59%) $0.89

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