An Insider Couldn’t Wait To Buy Homebuilder Lennar Corporation (LEN)

These companies each reported significant improvements on both top and bottom lines in their most recent quarter compared to the same period in the previous fiscal year. We’d note that while their valuations look cheap in forward earnings terms, analyst projections are calling for high growth to continue here; in fact, PulteGroup is valued at over 20 times trailing earnings so it is priced at a premium to Lennar Corporation (NYSE:LEN) on that basis. We’d note that DR Horton is seeing interest from short sellers as well.

Toll Brothers trades at 22 times forward earnings estimates, with markets giving it a premium likely due to its emphasis on more upscale residential construction. Its net income grew by 46% last quarter (which ended in April) from levels a year ago, with good revenue growth as well, though those figures aren’t too different from what we have seen at its peers. It has a higher bar to justify its current valuation, and so we think that we would avoid it. Growth numbers have also been very good at KB Home, which has approximately doubled in price over the last year. It’s another popular short target, with short sellers responsible for 27% of the float. It’s actually unprofitable on a trailing basis, and so we wouldn’t be buying it right now either.

A trailing P/E of 19 doesn’t seem too bad considering Lennar’s recent performance. The insider purchase could certainly be read as generally optimistic on housing, and investors interested in the industry as a macro play may want to keep that in mind. Considering the insider’s willingness to give up even a few thousand dollars worth of profit to be able to buy now as opposed to in the few months, we think that Lennar and some of its similarly priced peers might be worth a closer look.

Disclosure: I own no shares of any stocks mentioned in this article.