- By GF Value
The stock of Taylor Morrison Home (NYSE:TMHC, 30-year Financials) gives every indication of being fairly valued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $29.29 per share and the market cap of $3.8 billion, Taylor Morrison Home stock is believed to be fairly valued. GF Value for Taylor Morrison Home is shown in the chart below.
Because Taylor Morrison Home is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 13.9% over the past three years and is estimated to grow 19.93% annually over the next three to five years.
It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Taylor Morrison Home has a cash-to-debt ratio of 0.13, which is worse than 80% of the companies in Homebuilding & Construction industry. The overall financial strength of Taylor Morrison Home is 4 out of 10, which indicates that the financial strength of Taylor Morrison Home is poor. This is the debt and cash of Taylor Morrison Home over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Taylor Morrison Home has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $6.2 billion and earnings of $2.84 a share. Its operating margin is 8.67%, which ranks in the middle range of the companies in Homebuilding & Construction industry. Overall, the profitability of Taylor Morrison Home is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Taylor Morrison Home over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Taylor Morrison Home is 13.9%, which ranks better than 78% of the companies in Homebuilding & Construction industry. The 3-year average EBITDA growth rate is 10.6%, which ranks better than 66% of the companies in Homebuilding & Construction industry.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Taylor Morrison Home's return on invested capital is 6.00, and its cost of capital is 7.59. The historical ROIC vs WACC comparison of Taylor Morrison Home is shown below:
In conclusion, the stock of Taylor Morrison Home (NYSE:TMHC, 30-year Financials) appears to be fairly valued. The company's financial condition is poor and its profitability is fair. Its growth ranks better than 66% of the companies in Homebuilding & Construction industry. To learn more about Taylor Morrison Home stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.