What happened

Shares of top-10 national homebuilder Century Communities (CCS 0.44%) got punished with a 9.7% loss through 10:10 a.m. ET on Thursday, despite beating analyst forecasts for both sales and earnings in its third-quarter report, released last night.

Heading into the quarter, Wall Street was expecting Century to earn $4.20 per share on $1.06 billion in revenue. In fact, it earned $4.44 per share and sales were $1.14 billion -- and investors are selling the stock anyway.  

So what

On the surface, all seemed well with Century Communities in the third quarter, with deliveries of homes growing 13% year over year, sales up 19%, and net profits rising even faster than that at 27%. Co-CEO Dale Francescon described the results as "strong," and I won't quibble with that. The bigger problem, though, isn't what happened in the third quarter but what might happen in the fourth quarter and beyond.  

Specifically, Century said new home contracts signed in the quarter were only 1,318 -- or roughly half as many houses as the company delivered in the quarter. This indicates a steep slowdown in demand, which is happening all over the homebuilding industry right now

Now what

Francescon blamed rising interest rates and overall economic uncertainty for the slowdown, and assured investors he's taking steps to mitigate the damage by trying to cut costs, build more lower-cost homes, and generally slow construction, for example. Nevertheless, management is now forecasting that through year-end, home deliveries will not exceed 10,500 units, and revenue will be no more than $4.4 billion.

On the one hand, this means that sales will probably end up being slightly higher in 2022 than they were in 2021, but on the other hand, it suggests at least a 3% decline in home sales by unit, year over year. Management didn't say what it expects profits to look like next quarter, but with business slowing sharply, I think it's safe to say profits won't be rising 27% again.

The good news is that with a stock now priced at just 2.4 times trailing sales, a lot of bad news has been priced into Century Communities shares already. Perversely, the very moment at which the housing market seems to be cratering might be a great time to buy Century Communities stock.