PulteGroup, Inc. (PHM), Toll Brothers Inc (TOL): The Great Unanswered Question

Page 1 of 2

I hate it when I’m looking at an earnings report and I’m left with a big unanswered question. Unfortunately, that’s exactly what investors have been getting from PulteGroup, Inc. (NYSE:PHM). Each time the company reports earnings, they report numbers like revenue growth, backlog growth, margins, and balance sheet strength. However, there is one number that is left out, and that is the all important cancellation rate. What is even more disconcerting is, all of PulteGroup, Inc. (NYSE:PHM)’s peers report this number every quarter. The question for investors is, does PulteGroup, Inc. (NYSE:PHM) have something to hide?

PulteGroup, Inc. (NYSE:PHM)

Impressive Results?

There are a few key numbers that investors need to keep track of when it comes to home builders. One way to gauge PulteGroup, Inc. (NYSE:PHM)’s performance versus their competition is by looking at their operating margin. Home builders essentially compete in a commodity-based business. Each company may have their specialties, but there is no denying that homes are essentially made of the same basic materials.

Some of PulteGroup, Inc. (NYSE:PHM)’s competitors are Toll Brothers Inc (NYSE:TOL), Lennar Corporation (NYSE:LEN), and KB Home (NYSE:KBH). While Toll operates in the higher-end housing market, and the others are more direct competitors, they all compete for the customer’s home-building dollar. When it comes to profits, one way to compare these companies is by their operating margins. The leader of the group by this measure is Lennar Corporation (NYSE:LEN) with an operating margin of 13.3%, but PulteGroup, Inc. (NYSE:PHM) comes in second with a respectable 7.49% margin. By comparison, KB Home (NYSE:KBH)’s margin of 4.69% and Toll Brothers Inc (NYSE:TOL)’ margin of 1.81% look low.

A second way to compare these companies is by looking at their selling, general, and administrative expenses versus their revenue. A company that can leverage their expenses against larger revenue may deliver better profits and cash flow. The best by this measure is Lennar Corporation (NYSE:LEN) with an SG&A percentage of just 10.9%. Again PulteGroup comes in second by this measure at 11.8%. KB Home (NYSE:KBH) and Toll Brothers Inc (NYSE:TOL) spend a higher relative percentage at 13.4% and 15.4% respectively.

One big challenge facing home builders on an ongoing basis is managing the debt required to make their projects happen. These companies are forced to take on debt to fund their projects and then hope that the homes sell to recoup their expenses and make a profit. PulteGroup and their peers Lennar Corporation (NYSE:LEN) and KB Home (NYSE:KBH) each are not only home builders, but they also offer financing divisions. This causes each of these companies to carry more relative debt than Toll Brothers Inc (NYSE:TOL) that offers no financing division.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

The 10 Most Peaceful Countries in the World

5 Big Reasons Communism Failed

The 15 Most Famous Carl Icahn Quotes

10 Scary Animals that are Actually Harmless

The 8 Most Famous Singer-Actors in Entertainment

The 10 Longest Wars of All Time

The 13 Worst Looking Foods that Taste Great

The 6 Most Gruesome Injuries Suffered During a Sports Match

The 20 Biggest Contracts in MLB History

The 7 Worst Blown Calls in Sports History

7 Free Ways to Advertise Your Business Online

The 18 Best R&B Songs of the 90’s

The 10 Most Dangerous States to be a Cop

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!