What happened
Shares of D.R. Horton (DHI -1.29%) increased 12.4% last month, according to S&P Global Market Intelligence. The housing stock moved higher after its quarterly earnings report. The company topped analyst estimates for both revenue and earnings, and its forward-looking commentary drove optimism among investors.
So what
Uncertainty has been swirling around the housing market for the past few quarters. Mortgage rates hit the highest level in 20 years. A string of bank failures accelerated a trend of tightening lending standards, restricting access to loans for prospective homebuyers.
In addition, a wave of layoffs and the prospect of recession are harming consumer sentiment and discouraging major purchases. These factors have all contributed to weaker demand for housing, which has many investors worried about companies in that industry.
Image source: Getty Images.
D.R. Horton is the largest homebuilder in the U.S. by market share, so its financial performance is heavily influenced by these macroeconomic trends. The glut of bearish data in housing has cast uncertainty on D.R. Horton and its peers, but the market leader provided surprisingly strong results and commentary during its quarterly report last month.
The company's quarterly revenue was flat year over year, and its operating profits dropped more than 30%. Those aren't impressive numbers on their own, but they were both better than Wall Street's forecasts.
Importantly, D.R. Horton revised its full-year expectations higher, which were 10% higher than analyst estimates. The company reported 70% quarter-over-quarter growth in orders, suggesting that demand is accelerating. These results are somewhat surprising, given the recent slowdown in existing home sales, but D.R. Horton's commentary corroborates other important data points that many people have overlooked. New residential building starts and permit applications have increased significantly in recent months, while home prices have stabilized despite a number of headwinds.
Investors are hopeful that D.R. Horton has effectively navigated the worst portion of the most recent market disturbance. The latest results and commentary indicate that the company's results are ready to rebound moving forward.
Now what
This is all clearly bullish data for D.R. Horton, and its April charge is sensible. Still, the company's valuation ratios have charged to the highest level since 2021. The forward P/E is only 10.3, but this company has never commanded a high ratio, and that's fairly high relative to historical values.
DHI PE Ratio (Forward) data by YCharts
D.R. Horton's dividend yield is below 1%, so it's not producing a significant amount of income for shareholders. The homebuilding leader could be a good investment for investors who want to capitalize on long-term catalysts in the U.S. housing market. Don't be shocked if the stock tumbles after a potential recession causes turmoil for residential real estate over the next few quarters.
