1 Undervalued Homebuilder Could Soar—Why Investors Are Watching

Dream Finders Homes (NYSE:DFH) is a home-building company that focuses on the fast-growing Sun Belt real estate market.

Like many stocks tied to the real estate market, however, DFH has been through an extremely rocky period over the last year. The stock is down over 30% in the last 12 months, even though its financials have been quite positive.

Why is DFH selling off so aggressively, and how high could an eventual rebound take the stock?

Key Points

• DFH is down 30% due to high mortgage rates and tariffs on key building materials.

• Q4 revenue jumped 35% to $1.5B, net income rose 27%, and 2024 full-year growth remained solid.

• Buybacks and institutional support add strength.

Why Did Dream Finders Homes Stock Fall So Much?

Before examining Dream Finders specifically, it may be useful to briefly review the state of the housing market to understand why the stock has lost so much of its value. With rising interest rates in recent years, mortgage rates have moved into a very unappealing range for home buyers and exerted downward pressure on the housing market. At the time of this writing, the prevailing interest rate for a 30-year mortgage was just under 7%.

The threat of pending tariffs also poses a risk to builders, as the input costs for new homes could move substantially higher. Lumber, steel, aluminum and copper products are all possible tariff targets under the Trump administration, meaning that the prices of some of the most essential construction materials could rise suddenly if and when the administration puts its proposed tariffs in place.

While the exact impact won’t be known until the White House firms up the scope and size of its tariffs, current estimates suggest that the cost of building new homes could rise by 4-6% as a result.

Combined, these factors put builders like Dream Finders in a difficult position. Not only is the existing housing market facing headwinds from interest rates, but the situation is also likely to deteriorate further in the coming months as a result of tariff-related price increases. As a result, it’s little surprise that builder stocks like DFH are facing severe pressure.

Dream Finders Top Line Soars 35%

The fact that the home building market is facing so many difficulties right now makes Dream Finders’ positive performance all the more impressive. The recently released Q4 earnings report detailed 35% growth in revenues from building homes to $1.5 billion and a 27% jump in net income to a total of $129 million. For the full year of 2024, DFH reported revenue and net income growth of 18% and 13%, respectively.

In 2024, the company’s closings and new orders both jumped by 17%. DFH also saw strong growth in its financial services business, with pre-tax income increasing 62% compared to 2023’s numbers to a total of $32 million. The company was also gearing up for future growth with a much larger pipeline of controlled lots than it had going into 2024. For 2025, DFH projects total home closings of 9,250 compared to 8.583 in 2024.

2024 was also a highly active year for Dream Finders on the acquisition front. The company completed the purchase of two acquisition targets and signed purchase agreements for two more. This acquisition activity may well help DFH going forward by augmenting both building capacity and the financial services division.

Cumulatively, these results suggest that Dream Finders is successfully navigating a tricky housing market. Much of this success is likely due to the focus on the Sun Belt, an area of the country that is increasingly attracting those moving from other, slower-growing regions. While DFH certainly isn’t immune to the difficulties of the market at large, management’s execution has allowed the company to keep growing at an impressive pace.

Is DFH a Buy on the Dip?

Another point in DFH’s favor is the fact that the stock is trading at rather low valuation multiples and may be undervalued.

Right now, the company’s shares are priced at just 8.2x earnings and 0.6x sales. For reference, the average P/E ratio among S&P 500 stocks at the moment is 21.0.

Both analysts and institutional investors are staying bullish on DFH’s value at the moment. The average price forecast for the stock is currently $29, a jump of more than 17% from the last trading price of $24.76.

Even with the severe pressure on share prices, institutional buyers have acquired about $1.9 billion worth of DFH in the last six months against only $1.1 billion of selling activity. Right now, institutional investors own a bit over 56% of Dream Finders Homes.

How High Could Dream Finders Homes Go?

Dream Finders Homes has the potential to rise by 20.3% to $29.50 per share according to the consensus forecast of analysts covering the stock.

There’s little doubt that investing in home builders carries significant short-term risks due to broader factors in the economy but the combination of strong financials and potential undervaluation makes the stock quite appealing for investors willing to hold through what could be substantial volatility.

As to how high the stock could eventually go, several factors play into this question. To begin with, a combination of ongoing earnings growth and a potential rebound of value multiples to more normal levels could cause a fairly rapid spike in the price of the stock. We’ve already seen this happen to some degree, as DFH shares were up over 12% on a 5-day basis on the strength of the Q4 earnings report.

The Board of Directors gave the thumbs up to buy back some shares, which will no doubt be a cushion underneath the share price. $8 million of stock was repurchased last year. Although this is fairly de minimus relative to DFH’s $2.3 billion market capitalization, if it turns into an ongoing trend, expect the support may be felt by shareholders who stick around long-term.

To get a sense of where DFH could go once the big picture climate improves, let’s consider that the stock has topped out at a P/E ratio of about 15 twice since its 2021 IPO. If the stock rose to that level today on the $3.44 per share the company earned in 2024, the price would settle around $51.60.

Though this would be a very large mushroom from the current P/E multiple, it would be far from an unreasonable metric in better economic times. Paired with ongoing earnings growth and buybacks, it’s not too difficult to see DFH multiplying by 2-3 times if the current macroeconomic pressures ease off and the company can maintain its performance.

With all of this said, investors probably can’t expect a smooth, stable ride up for DFH. Much will depend on unknown factors like the scope of future tariffs and how long the Federal Reserve keeps interest rates elevated. Though there’s large potential in DFH and the underlying business is performing quite well at the moment, there are also substantial risks that should be taken into account.