Should You Investigate Green Brick Partners, Inc. (NYSE:GRBK) At US$28.76?

While Green Brick Partners, Inc. (NYSE:GRBK) might not be the most widely known stock at the moment, it led the NYSE gainers with a relatively large price hike in the past couple of weeks. As a stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Let’s take a look at Green Brick Partners’s outlook and value based on the most recent financial data to see if the opportunity still exists.

Check out our latest analysis for Green Brick Partners

Is Green Brick Partners Still Cheap?

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. I’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 4.84x is currently trading slightly below its industry peers’ ratio of 8.01x, which means if you buy Green Brick Partners today, you’d be paying a decent price for it. And if you believe that Green Brick Partners 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. Although, there may be an opportunity to buy in the future. This is because Green Brick Partners’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

What kind of growth will Green Brick Partners 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. 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. However, with a negative profit growth of -9.3% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Green Brick Partners. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? GRBK seems priced close to industry peers right now, 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 GRBK, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on GRBK for a while, now may not be the most optimal 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 gel your views on GRBK should the price fluctuate below the industry PE ratio.

If you'd like to know more about Green Brick Partners as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 1 warning sign for Green Brick Partners you should know about.

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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.