What Does Tri Pointe Homes, Inc.'s (NYSE:TPH) Share Price Indicate?

Tri Pointe Homes, Inc. (NYSE:TPH), is not the largest company out there, but it saw significant share price movement during recent months on the NYSE, rising to highs of US$33.67 and falling to the lows of US$27.37. 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 Tri Pointe Homes' current trading price of US$27.45 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Tri Pointe Homes’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out 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. 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 5.57x is currently trading slightly below its industry peers’ ratio of 7.91x, which means if you buy Tri Pointe Homes today, you’d be paying a decent price for it. And if you believe Tri Pointe Homes 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 Tri Pointe Homes’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.

Can we expect growth from Tri Pointe Homes?

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 -11% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Tri Pointe Homes. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? TPH 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 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 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 TPH should the price fluctuate below the industry PE ratio.

So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. To that end, you should learn about the 2 warning signs we've spotted with Tri Pointe Homes (including 1 which is potentially serious).

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.