PulteGroup (PHM): Evaluating the Builder's Value as Mortgage Rates Hit Homebuyer Demand

If you own or are eyeing shares of PulteGroup (PHM), the past few weeks have put the spotlight directly on the company. Headlines point to rising mortgage rates and persistent affordability issues that are weighing on demand across the homebuilding sector. Like its peers, PulteGroup is wrestling with slowing sales and profitability concerns, as companies roll out sales incentives to entice buyers but end up making less on each home.

In this environment, PulteGroup’s share price action tells a story of shifting investor sentiment. Over the past month, momentum has slowed to a crawl, while the past year has seen the stock slide about 8%. However, when looking at the multiyear chart, a different picture emerges, with strong gains over the last three and five years. The recent dip contrasts with the company’s longer-term trajectory and raises questions about how much of today’s concerns are already reflected in the price.

Given these crosscurrents in the stock and the sector, is PulteGroup trading at a discount to its real value, or is the market correctly pricing in tougher days ahead? Let’s dig into the numbers.

Most Popular Narrative: 4.5% Undervalued

The most widely followed narrative values PulteGroup as undervalued, concluding its fair value is about four and a half percent above the current share price.

Large and diversified land positions, with a focus on options rather than ownership, provide risk mitigation and capital flexibility. This allows PulteGroup to respond opportunistically to population migration patterns, notably to the Southeast and Sunbelt. This strategy aligns the company with long-term domestic migration trends and supports future sales volumes and return on equity.

Curious to discover why the market may be overlooking PulteGroup’s true potential? This narrative hinges on bold financial projections that could change how you think about homebuilding. If you’re ready to see the hidden quantitative drivers beneath the headline numbers, you will want to explore the complete analysis on what is powering this price target.

Result: Fair Value of $137.38 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, persistent affordability challenges and regional market weakness, especially in tech-driven areas, could have an impact on PulteGroup’s future earnings and margins.

Find out about the key risks to this PulteGroup narrative.

Another View: Discounted Cash Flow Perspective

Looking at PulteGroup through the lens of our DCF model gives another perspective. This suggests the shares could be significantly undervalued based on projected future cash flows. Could the market be missing something fundamental here?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out PulteGroup for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own PulteGroup Narrative

If you see things differently or want to dive into the details yourself, you can quickly craft your own data-driven narrative and perspective on PulteGroup. Do it your way.

A great starting point for your PulteGroup research is our analysis highlighting 2 key rewards and 2 important warning signs that could impact your investment decision.

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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.

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