Should You Investigate Tri Pointe Homes, Inc. (NYSE:TPH) At US$16.43?

While Tri Pointe Homes, Inc. (NYSE:TPH) might not be the most widely known stock at the moment, it saw a double-digit share price rise of over 10% in the past couple of months on the NYSE. 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, what if the stock is still a bargain? Let’s take a look at Tri Pointe Homes’s outlook and value based on the most recent financial data to see if the opportunity still exists.

See our latest analysis for Tri Pointe Homes

What Is Tri Pointe Homes Worth?

According to my 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. 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 Tri Pointe Homes’s ratio of 3.31x is trading slightly below its industry peers’ ratio of 6.46x, which means if you buy Tri Pointe Homes today, you’d be paying a reasonable price for it. And if you believe that Tri Pointe Homes 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. Is there another opportunity to buy low in the future? Since Tri Pointe Homes’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

Can we expect growth from Tri Pointe Homes?

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. Though in the case of Tri Pointe Homes, it is expected to deliver a negative earnings growth of -14%, 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, TPH 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 TPH, take a look at whether its fundamentals have changed.

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

If you want to dive deeper into Tri Pointe Homes, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 2 warning signs for Tri Pointe Homes you should know about.

If you are no longer interested in Tri Pointe 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.