Ryland Group Inc (NYSE:RYL) — This is the sixth largest U.S. homebuilder by revenue and the seventh largest by market capitalization.
The company saw a 22% jump in revenues in 2014, a 9% increase in the number of homes delivered, and a 12% increase in the average home price. For 2015, S&P Capital IQ projects 6.5% growth in revenues, 4.2% unit growth and a 2.5% increase in the average price per unit.
Its analysts forecast earnings will rise 9% to $3.36 per share this year and another 5% to $3.52 next year. Trading at about 14.6 times estimated 2015 EPS, RYL stock seems undervalued compared to its peers, which have an average forward earnings multiple of about 15.5.
In February, Capital IQ raised its 12-month target for RYL stock by $7 to $49. However, in light of the company’s potential, that target appears very modest.
Housing starts fell to the lowest level since 2009 in February, the coldest for many Americans since 1979. However, despite the harsh weather, new home sales jumped 7.8% last month to the highest level in seven years. This signals pent-up demand for new houses, which provides an excellent platform for Ryland’s earnings growth in 2015.
The chart of RYL stock shows a huge bullish “W” breakout in January followed by a very clear flag. These are classic bullish formations, especially when accompanied by high volume. Other positive technical indicators include: a strong buy from the MACD indicator; a golden cross (a long-term buy signal that occurs on a crossover of the 50-day moving average up through the 200-day moving average); and a recent breakout from a bullish flag.
Buy RYL stock for a six-month trade with a price objective of $55 for a 12.5% return.
