While Tri Pointe Homes, Inc. (NYSE:TPH) might not have the largest market cap around , it saw a decent share price growth of 15% on the NYSE over the last few months. The recent share price gains has brought the company back closer to its yearly peak. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock's share price. But what if there is still an opportunity to buy? Let's examine Tri Pointe Homes's valuation and outlook in more detail to determine if there's still a bargain opportunity.
What's The Opportunity In Tri Pointe Homes?
According to our price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. We've used the price-to-earnings ratio in this instance because there's not enough visibility to forecast its cash flows. The stock's ratio of 9.92x is currently trading slightly below its industry peers' ratio of 11.06x, which means if you buy Tri Pointe Homes today, you'd be paying a reasonable price for it. And if you believe that Tri Pointe Homes should be trading at this level in the long run, then there's not much of an upside to gain over and above other industry peers. So, is there another chance to buy low in the future? Given that Tri Pointe Homes's share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
What kind of growth will Tri Pointe Homes generate?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it's the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Tri Pointe Homes' earnings growth are expected to be in the teens in the upcoming year, indicating a solid future ahead. This should lead to robust cash flows, feeding into a higher share value.
What This Means For You
Are you a shareholder? It seems like the market has already priced in TPH's positive outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven't considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at TPH? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?
Are you a potential investor? If you've been keeping tabs on TPH, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for TPH, which means it's worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. While conducting our analysis, we found that Tri Pointe Homes has 1 warning sign and it would be unwise to ignore this.
If you are no longer interested in Tri Pointe Homes, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.