Market Commentary: 1 Extraordinary Firm Soaring Right Now
It’s bad out there the news media will tell you. Silicon Valley Bank collapsed. First Republic Bank collapsed. First Horizon shares crashed. Bank PacWest cratered. US Bancorp tumbled.
The source of all the turmoil? The Fed raising rates.
So you would expect in a rising interest rate environment that a large homebuilder would have gone nowhere but south. Yet Taylor Morrison Home Corp has done quite the opposite. Why is it that softening demand in a rising interest rate environment has not hurt TMHC?
A Beautiful Chart
The chart of Taylor Morrison Home Corp is really a thing of beauty. From October to May, it essentially did nothing but go up slowly, and relentlessly.
It would have been an ideal candidate for a LEAPS call option that would have been fairly inexpensive yet gained massively in percentage terms over the intervening months.
But that’s water under the bridge. What would a world class investor say about the stock now?
Stan Druckenmiller has a comment about technicals and fundamentals. In a pool of 5,000 companies you can always find 20 that have attractive fundamentals and technicals. The technicals act as a check against the fundamentals, he says, and vice versa.
What he means is if the fundamentals are great but the technicals are awful, be wary. And similarly if the technicals are attractive but fundamentals are poor, be skeptical. In the case of TMHC, the chart is a thing of beauty but what about the funadamentals?
Are the Fundamentals Solid?
Not only is the chart spectacular but the financials are impressive too. Here’s what we uncovered during our research. Firstly, the stock has a perfect Piotroski Score, a perfect 9.
A tailwind for the firm has been a management share repurchase scheme, which is in place until the end of 2023.
Next we have a compelling valuation play. By our estimates, the fair value for TMHC is $76 per share based on a 10 year discounted cash flow forecast analysis. With the stock sitting in the $40s that leaves considerable upside potential still.
But wait, there’s more.
The price-to-earnings ratio for TMHC is just 4.3x, a modest premium to earnings for a company that is delivering so well on the bottom line; we counted 12 quarters straight of operating income in the black.
All that success has translated into an ever-improving balance sheet with cash climbing up towards $900 million while long-term debt is a relatively modest $2.1 billion.
All in all, Taylor Morrison is one of those rare companies that has a combination of attractive fundamentals and technicals. Will it continue? We don’t see a reason to fight the trend until it breaks. In short, ride the wave higher for as high as it goes, and if you are worried add a trailing stop below support.
