At US$128, Is PulteGroup, Inc. (NYSE:PHM) Worth Looking At Closely?

Let's talk about the popular PulteGroup, Inc. (NYSE:PHM). The company's shares received a lot of attention from a substantial price movement on the NYSE over the last few months, increasing to US$149 at one point, and dropping to the lows of US$120. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether PulteGroup's current trading price of US$128 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at PulteGroup’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

View our latest analysis for PulteGroup

What Is PulteGroup Worth?

According to our price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. We’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 9.15x is currently trading slightly below its industry peers’ ratio of 11.42x, which means if you buy PulteGroup today, you’d be paying a reasonable price for it. And if you believe PulteGroup should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. Although, there may be an opportunity to buy in the future. This is because PulteGroup’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 does the future of PulteGroup look like?

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. However, with a negative profit growth of -1.5% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for PulteGroup. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? PHM 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 reduce the risk in 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 PHM, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on PHM 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 gel your views on PHM should the price fluctuate below the industry PE ratio.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Every company has risks, and we've spotted 2 warning signs for PulteGroup (of which 1 is potentially serious!) you should know about.

If you are no longer interested in PulteGroup, 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.