Damn. Now I regret not reading this sooner. It already reached your intrinsic value in a span of few months! what do you think at this current prices? seems really frothy given your assumptions.
Ya, that ran away quickly. I've owned it for a few months now, but getting to a point where I think the risk/reward is more balanced, and there are probably better places for that capital. Just my $0.02.
I'm still not that comfortable underwriting macro KPIs much higher than the initial base case, but admit that the macro is shaping up better than I initially expected - if you had a more optimistic macro outlook than I've used, I think you can probably still make a compelling investment case here... but to each their own on that front!
Update: I initiated a starter position after reading their recent annual shareholder letter. I'm gonna do a side car investing on this one as I don't wanna do a mistake of omission on this one. Management is top notch!
I've been asked by a few different people for a TOI update - although I'm not sure there would be that much to write about. I have it in the schedule, but it might not be for a few more months yet!
Nice work here. Another company has just become public and probably closest comp to dreams United homes. Symbol UHG. They growing quicker and have higher margins. Have you looked into ?
Wow, really appreciate your write ups. You can tell that you put a lot of thought into them! Out of curiosity, where do you pull your data from to build the DCF?
Thanks! All the historical company specific data was just pulled from financial statements, and industry stuff comes from all over, but I've aggregated a lot of it in an industry model that you can find in the Feb 28 Deep Dive.
It seems to me one big difference between NVR and DFH behind land/lot option model is motivation. NVR is doing that for conservativeness and DFH is from aggressiveness. NVR use options to be asset light while DHF use options to leverage up, as NVR is net cash while DFH borrow heavily from its credit facility. In a real estate up market, especially in FL in the past 10yrs, DFH/aggressiveness did well. However, what would happen in a down market? In your homebuilding Part 1, you mentioned NVR is the only long lived home builder thanks to their conservativeness. DFH does not strike to me as that. I am no expert in home building business and generally do not like leverage too much. So I could be both ignorant and bias on this topic. I would like to hear what I am missing here.
I don't disagree that culturally NVR is much more conservative than DFH (and most other builders for that matter), however, I think both businesses pursue the land/lot option strategy because it's the most capital efficient, which then translates into a better ROIC. There are plenty of other long-lived builders (I don't recall saying that specifically about NVR anywhere) that survive through the cycle, but I think you're point is that those other builders have to cope with A LOT more FCF volatility. I don't love the leverage at DFH - and it's certainly an aggressive team - but given that it's tied to NWC, and NWC is countercyclical, I can wrap my head around the idea that it's not a big risk - if anything it might just hamper their ability to act countercyclically like NVR did during the GFC (which added tremendous value to shareholders). I'd also point out that if I'm right that they can manage through the cycle with this level of leverage, then they should generate a pretty extraordinary through-cycle ROE. I think Exhibit K and Exhibit L are tell that combined story pretty well.
Ahhh, no I'm archaic and pull it all by hand. That's obviously not very efficient, but the process of doing that helps me catch little nuances and footnotes I'd otherwise miss, and my gut feel is that I end up understanding the business a little better than I would otherwise.
Damn. Now I regret not reading this sooner. It already reached your intrinsic value in a span of few months! what do you think at this current prices? seems really frothy given your assumptions.
Ya, that ran away quickly. I've owned it for a few months now, but getting to a point where I think the risk/reward is more balanced, and there are probably better places for that capital. Just my $0.02.
I'm still not that comfortable underwriting macro KPIs much higher than the initial base case, but admit that the macro is shaping up better than I initially expected - if you had a more optimistic macro outlook than I've used, I think you can probably still make a compelling investment case here... but to each their own on that front!
I am always careful with my assumptions also so I will heed your advice! But who knows, the price will drop as the run up was really fast. lol
Again, thanks for your work here. It always impresses me how you can weave through all the data and put them in a manner that is an easy read. Kudos!
P.s. still waiting on your Topicus follow up haha
Update: I initiated a starter position after reading their recent annual shareholder letter. I'm gonna do a side car investing on this one as I don't wanna do a mistake of omission on this one. Management is top notch!
I just read through his last letter, and I agree... Patrick is a guy you want to hitch a wagon to. He says all the right things and walks the talk.
Agree. But again I need to be more optimistic than your assumptions on its current price!
P.s. Do an update for Topicus please 🙏
I've been asked by a few different people for a TOI update - although I'm not sure there would be that much to write about. I have it in the schedule, but it might not be for a few more months yet!
Nice work here. Another company has just become public and probably closest comp to dreams United homes. Symbol UHG. They growing quicker and have higher margins. Have you looked into ?
No, I've never heard of them, but thanks for flagging!
Wow, really appreciate your write ups. You can tell that you put a lot of thought into them! Out of curiosity, where do you pull your data from to build the DCF?
Thanks! All the historical company specific data was just pulled from financial statements, and industry stuff comes from all over, but I've aggregated a lot of it in an industry model that you can find in the Feb 28 Deep Dive.
Your work is amazing, thank you so much for sharing it.
Thanks, Max!
The Buffett-Munger Profitability Investing Truism Dharma 35: Update
Back test of Modal Compound Equation by the 26 years Growth in NVR (NYSE).
In 1994, Norbert Lou managed $60,000 of his mother retirement money, nearly all of her investible funds at the time.
In 1997, he invested in NVR (NYSE) ( ≈ $ 22 per share).
Fast forward 26 years to 2023 from 1997, the stock price is ≈ $ 7,000 with CAGR 16.6732613328%.
The return is ≈ 320 x, or 32,000 %, if he hasn't sold his mother's NVR (NYSE) stocks.
Stock: NVR (NYSE)
Terms: 26 years
A.
Number of shares (1997)
= 1,183,9000
Number of shares (2023)
= 3,238,161
Note:
Share buy back occurs between 1997-2023.
B.
:: 1997 ::
Net income
= 28,879,000
Number of shares (1997)
= 11,839,000
EPS
= 28,879,000÷11,839,000
= $ 2.4393107526
Stock Price Pentry@ 31.12.1997
= $ 21.88
Pentry/EPSentry
= 21.88÷2.4393107526
= 8.9697468749
SBB Ratio per year is
= (3,238,161÷11,839,000)^(1÷26)-1
= -0.0486386232
= equivalent to SBB per year CAGR 4.86386232% for 26 years
C.
:: 2023 ::
Net income
= 1,591,611,000
Number of shares (2023)
= 3,238,161
EPSexit
= 1,591,611,000÷3,238,161
= $ 491.5169443397
Stock Exit Price, Pexit@ 29.12.2023
= $ 7000.45
Pexit/Eexit
= 7,000.45÷491.5169443397
= 14.2425405281
D.
Net Income 2023
= $ 1,591,611,000
Net Income 1997
= $ 28,879,000
CAGR (1997-2023, 26 years)
= 100×((1,591,611,000÷28,879,000)^(1÷26)−1)
= 16.6732613328 %
Modal Compound Multiple at 26th Years
=
Pexit/Eexit ÷ Pentry/Eentry
×
[
(1 + Cagr_ratio) ÷ (1-SBB_ratio)
]^number_of_years
=
14.2425405281÷8.9697468749
×
[
(1+0.166732613328)÷(1−0.0486386232)
]^26
= 319.94744096034 baggers
Pexit
= Stock Entry Price × Modal Compound Multiple at 26th Years
= 21.88 × 319.94744096034
= $ 7000.45
E.
Conclusion:
The Stock's Modal Compound Equation
::
Pexit/Eexit ÷ Pentry/Eentry
×
[
(1 + Cagr_ratio) ÷ (1-SBB_ratio)
]^number_of_years
::
is ✅
Any updates now that we are in November 2024?
It seems to me one big difference between NVR and DFH behind land/lot option model is motivation. NVR is doing that for conservativeness and DFH is from aggressiveness. NVR use options to be asset light while DHF use options to leverage up, as NVR is net cash while DFH borrow heavily from its credit facility. In a real estate up market, especially in FL in the past 10yrs, DFH/aggressiveness did well. However, what would happen in a down market? In your homebuilding Part 1, you mentioned NVR is the only long lived home builder thanks to their conservativeness. DFH does not strike to me as that. I am no expert in home building business and generally do not like leverage too much. So I could be both ignorant and bias on this topic. I would like to hear what I am missing here.
I don't disagree that culturally NVR is much more conservative than DFH (and most other builders for that matter), however, I think both businesses pursue the land/lot option strategy because it's the most capital efficient, which then translates into a better ROIC. There are plenty of other long-lived builders (I don't recall saying that specifically about NVR anywhere) that survive through the cycle, but I think you're point is that those other builders have to cope with A LOT more FCF volatility. I don't love the leverage at DFH - and it's certainly an aggressive team - but given that it's tied to NWC, and NWC is countercyclical, I can wrap my head around the idea that it's not a big risk - if anything it might just hamper their ability to act countercyclically like NVR did during the GFC (which added tremendous value to shareholders). I'd also point out that if I'm right that they can manage through the cycle with this level of leverage, then they should generate a pretty extraordinary through-cycle ROE. I think Exhibit K and Exhibit L are tell that combined story pretty well.
Gotcha thanks! Do you use tikr or something similar to input the financials into your DCF or do you fill it in by hand?
Ahhh, no I'm archaic and pull it all by hand. That's obviously not very efficient, but the process of doing that helps me catch little nuances and footnotes I'd otherwise miss, and my gut feel is that I end up understanding the business a little better than I would otherwise.