Why Dream Finders Homes, Inc. (NYSE:DFH) Could Be Worth Watching

Dream Finders Homes, Inc. (NYSE:DFH), is not the largest company out there, but it led the NYSE gainers with a relatively large price hike in the past couple of weeks. As a US$2.2b market-cap stock, it seems odd Dream Finders Homes is not more well-covered by analysts. Although, there is more of an opportunity for mispricing in stocks with low coverage, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Today I will analyse the most recent data on Dream Finders Homes’s outlook and valuation to see if the opportunity still exists.

See our latest analysis for Dream Finders Homes

What's The Opportunity In Dream Finders Homes?

The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Dream Finders Homes’s ratio of 9.38x is trading slightly above its industry peers’ ratio of 8.92x, which means if you buy Dream Finders Homes today, you’d be paying a relatively reasonable price for it. And if you believe that Dream Finders Homes should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. So, is there another chance to buy low in the future? Given that Dream Finders 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 Dream Finders Homes generate?

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. Though in the case of Dream Finders Homes, it is expected to deliver a highly negative earnings growth in the upcoming, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What This Means For You

Are you a shareholder? Currently, DFH appears to be trading around industry price multiples, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on DFH, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on DFH for a while, now may not be the most advantageous time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help crystallize your views on DFH should the price fluctuate below the industry PE ratio.

If you want to dive deeper into Dream Finders Homes, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 3 warning signs for Dream Finders Homes (of which 2 are potentially serious!) you should know about.

If you are no longer interested in Dream Finders Homes, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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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.