NVR (NVR): Buy, Sell, or Hold Post Q2 Earnings?

Even though NVR (currently trading at $8,276 per share) has gained 10.3% over the last six months, it has lagged the S&P 500’s 16% return during that period. This may have investors wondering how to approach the situation.

Is now the time to buy NVR, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Why Is NVR Not Exciting?

We don't have much confidence in NVR. Here are three reasons you should be careful with NVR and a stock we'd rather own.

1. Weak Backlog Growth Points to Soft Demand

Investors interested in Home Builders companies should track backlog in addition to reported revenue. This metric shows the value of outstanding orders that have not yet been executed or delivered, giving visibility into NVR’s future revenue streams.

NVR’s backlog came in at $4.75 billion in the latest quarter, and over the last two years, its year-on-year growth averaged 1.3%. This performance was underwhelming and suggests that increasing competition is causing challenges in winning new orders.

2. Revenue Projections Show Stormy Skies Ahead

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect NVR’s revenue to drop by 6.9%, a decrease from its 8.3% annualized growth for the past five years. This projection is underwhelming and indicates its products and services will face some demand challenges.

3. New Investments Fail to Bear Fruit as ROIC Declines

A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, NVR’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Final Judgment

NVR isn’t a terrible business, but it doesn’t pass our quality test. With its shares underperforming the market lately, the stock trades at 19.3× forward P/E (or $8,276 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're pretty confident there are superior stocks to buy right now. Let us point you toward one of our all-time favorite software stocks.

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