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3 Homebuilders to Evict From Your Portfolio

A stronger home market may be coming, but these shares have gotten ahead of any rebound

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DR Horton

If you owned DR Horton over the last three months, you’ve done quite well. Despite the stock being down 5% during Wednesday’s market rout, shares are up a rock-solid 20% over the past three months. Those gains have the stock trading for nearly 1.5 times book value, a hefty premium considering the industry’s headwinds.

From an earnings perspective DR Horton is doing well. The company has exceeded Wall Street estimates in each of the last two quarters and three of the last four. For the full year ending Sept. 30, analysts expect a profit of 26 cents per share. That profit is forecast to grow by 88% in the following year, to 49 cents per share. At current prices, DR Horton trades for a whopping 44 times current-year estimated earnings.

The profits are nice, but they’re small. Book value then is likely to grow only slightly. And because there’s still risk of further declines in homebuilding, those profits aren’t assured. A more reasonable valuation of DR Horton would be 1.2 times book value.

I would look to sell this stock today and buy at a cheaper level.

Article printed from InvestorPlace Media,

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