LGI Homes Inc (NASDAQ: LGIH): The Best Housing Market Stock to Own?

Although the economy might not seem like it’s in great shape due to the pandemic, people will always need a place to call home. This is part of the reason why looking at the housing market for investment opportunities might be a smart idea at this time. Pending home sales looked very bleak this year until a record spike of 44.3% in May compared to April, which might have marked the beginning of a recovery in the housing sector.

With mortgage interest rates at historic lows and lots of pent-up demand for housing due to lockdowns, buying shares of a company like LGI Homes Inc (NASDAQ: LGIH) could be a wise decision. It is one of the best housing stocks to consider owning and should end up rewarding investors regardless of how long a full economic recovery takes. Here are some of the best reasons to consider buying LGI Homes stock.

LGI Homes Favorable Market Conditions

LGI Homes is a company that specifically targets homebuyers that are looking for houses on the lower end of the price spectrum. The average selling price for its homes comes in at around $240,000 versus the average builder price of $400,000. What this means is that the majority of the people buying from LGI Homes are either first-time homebuyers or people interested in affordable housing. This target demographic should absolutely work in LGI’s favor going forward.

When mortgage rates are low, it tends to encourage first-time homebuyers to take the plunge and lock in a low-interest rate while they can. Although there’s always the chance of an interest rate increase, it doesn’t appear that will occur anytime soon while the Federal Reserve is fully committed to stimulating the economy. There are also plenty of millennials that are reaching the age of becoming first-time homeowners, which is great news for LGI. Even if the economy is in a prolonged recession, homebuyers will still be looking at LGI Homes due to their attractive price points. These favorable market conditions could be exactly what this company needs to continue its growth.

LGI Homes Consistently Growing Revenues

Another great reason to consider owning LGI Homes stock has to do with the way it has been consistently growing its revenue figures. The company substantially increased sales revenue by 58% year-over-year in Q1 to $457.7M. This was largely driven by an increase in Home Closings of 49.4% and an increase in the average home sales price. Net income in Q1 also increased by 133.7% year-over-year to $42.8 million. Q1 was impressive, to say the least, and these types of numbers tell us that there is a ton of demand for LGI Homes even in the face of a pandemic.

An additional number that confirms the strong demand for LGI Homes is the home closings figure reported for Q2. The company announced a record-breaking quarter of 2,005 home closings which was a 3.1% year-over-year increase. LGI Homes also saw a 16.7% growth of home closings in June when compared to June of 2019. These numbers should be an indicator of good things to come for the company when it announces second-quarter earnings on Tuesday, August 4^th before market open.

LGI Homes Operating in the Right Regions

As of now, the housing market looks like it might be rebounding in a v-shaped recovery. That doesn’t necessarily mean that all of the real estate markets in the country will be back to business as usual. When you are buying a housing stock you should consider the region in which the company operates. The good news for LGI Homes is that its properties are primarily concentrated in the Southwest and the East. This is good for the company for two reasons.

First, states like Texas, Georgia, and Florida have already shown us that they are more willing to open up without stringent Covid-19 restrictions. That means it will be easier for homebuyers to move forward with transactions in many of the states that LGI has properties in. Additionally, there is growing evidence that buyers are shifting towards more affordable suburban homes versus properties located in expensive and bustling cities. This could end up working in LGI’s favor since it has properties in states like Tennessee, North Carolina, Nevada, and Arizona that feature suburban living at lower prices.

LGI Homes Stock A Lot to Like

There’s a lot to like about LGI Homes stock if you are looking to buy a company in the housing sector. With annual revenue growth of 31% over the past 5 years, signs of a v-shaped recovery in the housing market, and favorable market conditions working in its favor, LGI Homes might be the best housing stock to own at this time. Just keep in mind that the stock has been very hot and is trading at all-time highs, so be careful about your entry point if you are interested in adding shares.