This Less-Followed Home Builder Could Be Setting Up For a Rally
One of the biggest beneficiaries of the changing economy has been the housing industry. The health crisis has caused consumers to reevaluate their living conditions and new and existing home sales have been trending higher over the last few quarters. Homebuilding stocks have rallied sharply over the last eight months and the SPDR S&P Homebuilders ETF (XHB) has more than doubled. The fund fell below the $25 level in March and is now trading over $55.
LGI Homes (LGIH) took part in the rally, rallying almost an exact $100 from its low of $33 to a high of $132.98. The stock has pulled back over the last few months, but may be setting up for another leg higher. The stock pulled back briefly in the third quarter and hit a low of $101.30 before rallying to its all-time high. The recent pullback has brought the $101-$102 range back in to play. The recent pullback has also brought the weekly stochastic readings down close to oversold territory for the first time since March.
Prior to the oversold readings in March, the indicators were below 30 in the fourth quarter of 2019 and in Q4 2018. In both of those instances the stock rallied off their lows.
LGI Homes isn’t as widely followed as competitors like Lennar (LEN) and D.R. Horton (DHI), and it also doesn’t have as much optimism toward it. From a contrarian perspective, this is a good thing for LGI as it leaves room for the bearish sentiment to shift to bullish and help push the stock higher.
LGI only has five analysts covering it with one “buy” rating, three “hold” ratings, and one “sell” rating. Not only is the overall coverage low, but the buy percentage is only 20%. On the other hand D.R. Horton has 22 analysts covering it with 16 “buy” ratings and six “hold” ratings. That’s a buy percentage of 72.7%. Lennar also has 22 analysts covering it with 13 “buy” ratings and nine “hold” ratings. That means its buy percentage is 59.1%.
Short sellers are also displaying pessimism toward LGI. The short interest ratio is at 8.5 currently and that is well above the average ratio in the 3.0 range. Lennar’s short interest ratio is 3.1 and D.R. Horton’s is below average at 1.5.
If we look at the Tickeron Screener for these three stocks, LGI has one positive indicator from the Profit vs. Risk Rating and it has one negative from the PE Growth Rating. D.R. Horton has two positive readings and two negative readings while Lennar has one positive and one negative. Both Lennar and D.R. Horton get negative readings for the Outlook Rating.
LGIH's RSI Oscillator recovers from oversold territory
The RSI Indicator for LGIH moved out of oversold territory on October 28, 2024. This could be a sign that the stock is shifting from a downward trend to an upward trend. Traders may want to buy the stock or call options. The A.I.dvisor looked at 24 similar instances when the indicator left oversold territory. In of the 24 cases the stock moved higher. This puts the odds of a move higher at .
Technical Analysis (Indicators)
Bullish Trend Analysis
The Stochastic Oscillator shows that the ticker has stayed in the oversold zone for 4 days. The price of this ticker is presumed to bounce back soon, since the longer the ticker stays in the oversold zone, the more promptly an upward trend is expected.
The 50-day moving average for LGIH moved above the 200-day moving average on September 27, 2024. This could be a long-term bullish signal for the stock as the stock shifts to an upward trend.
Following a 3-day Advance, the price is estimated to grow further. Considering data from situations where LGIH advanced for three days, in of 305 cases, the price rose further within the following month. The odds of a continued upward trend are .
LGIH may jump back above the lower band and head toward the middle band. Traders may consider buying the stock or exploring call options.
Bearish Trend Analysis
The Momentum Indicator moved below the 0 level on October 21, 2024. You may want to consider selling the stock, shorting the stock, or exploring put options on LGIH as a result. In of 86 cases where the Momentum Indicator fell below 0, the stock fell further within the subsequent month. The odds of a continued downward trend are .
The Moving Average Convergence Divergence Histogram (MACD) for LGIH turned negative on September 26, 2024. This could be a sign that the stock is set to turn lower in the coming weeks. Traders may want to sell the stock or buy put options. Tickeron's A.I.dvisor looked at 48 similar instances when the indicator turned negative. In of the 48 cases the stock turned lower in the days that followed. This puts the odds of success at .
LGIH moved below its 50-day moving average on October 21, 2024 date and that indicates a change from an upward trend to a downward trend.
The 10-day moving average for LGIH crossed bearishly below the 50-day moving average on October 24, 2024. This indicates that the trend has shifted lower and could be considered a sell signal. In of 13 past instances when the 10-day crossed below the 50-day, the stock continued to move higher over the following month. The odds of a continued downward trend are .
Following a 3-day decline, the stock is projected to fall further. Considering past instances where LGIH declined for three days, the price rose further in of 62 cases within the following month. The odds of a continued downward trend are .
The Aroon Indicator for LGIH entered a downward trend on October 28, 2024. This could indicate a strong downward move is ahead for the stock. Traders may want to consider selling the stock or buying put options.
The Tickeron PE Growth Rating for this company is (best 1 - 100 worst), pointing to average earnings growth. The PE Growth rating is based on a comparative analysis of stock PE ratio increase over the last 12 months compared against S&P 500 index constituents.
The Tickeron Seasonality Score of (best 1 - 100 worst) indicates that the company is fair valued in the industry. The Tickeron Seasonality score describes the variance of predictable price changes around the same period every calendar year. These changes can be tied to a specific month, quarter, holiday or vacation period, as well as a meteorological or growing season.
The Tickeron Price Growth Rating for this company is (best 1 - 100 worst), indicating fairly steady price growth. LGIH’s price grows at a lower rate over the last 12 months as compared to S&P 500 index constituents.
The Tickeron SMR rating for this company is (best 1 - 100 worst), indicating weak sales and an unprofitable business model. SMR (Sales, Margin, Return on Equity) rating is based on comparative analysis of weighted Sales, Income Margin and Return on Equity values compared against S&P 500 index constituents. The weighted SMR value is a proprietary formula developed by Tickeron and represents an overall profitability measure for a stock.
The Tickeron Valuation Rating of (best 1 - 100 worst) indicates that the company is slightly overvalued in the industry. This rating compares market capitalization estimated by our proprietary formula with the current market capitalization. This rating is based on the following metrics, as compared to industry averages: P/B Ratio (1.453) is normal, around the industry mean (7.196). P/E Ratio (13.589) is within average values for comparable stocks, (103.177). Projected Growth (PEG Ratio) (0.000) is also within normal values, averaging (1.437). LGIH has a moderately low Dividend Yield (0.000) as compared to the industry average of (0.044). P/S Ratio (1.147) is also within normal values, averaging (88.859).
The Tickeron Profit vs. Risk Rating rating for this company is (best 1 - 100 worst), indicating that the returns do not compensate for the risks. LGIH’s unstable profits reported over time resulted in significant Drawdowns within these last five years. A stable profit reduces stock drawdown and volatility. The average Profit vs. Risk Rating rating for the industry is 53, placing this stock worse than average.
Notable companies
Industry description
Market Cap
High and low price notable news
Volume
Fundamental Analysis Ratings
The average fundamental analysis ratings, where 1 is best and 100 is worst, are as follows
General Information
a provider of residential construction services
Industry Homebuilding