Is There Now An Opportunity In NVR, Inc. (NYSE:NVR)?

Let's talk about the popular NVR, Inc. (NYSE:NVR). The company's shares led the NYSE gainers with a relatively large price hike in the past couple of weeks. With many analysts covering the large-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 NVR’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out our latest analysis for NVR

What Is NVR Worth?

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 NVR’s ratio of 11.15x is trading slightly above its industry peers’ ratio of 7.39x, which means if you buy NVR today, you’d be paying a relatively reasonable price for it. And if you believe that NVR should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Furthermore, NVR’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.

What kind of growth will NVR 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. However, with an extremely negative double-digit change in profit expected over the next couple of years, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for NVR, at least in the near future.

What This Means For You

Are you a shareholder? Currently, NVR 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 beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on NVR, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on NVR 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. In addition to this, 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 NVR should the price fluctuate below the industry PE ratio.

If you want to dive deeper into NVR, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 2 warning signs for NVR (of which 1 shouldn't be ignored!) you should know about.

If you are no longer interested in NVR, 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.