DR HORTON INC (NYSE:DHI) – A Strong Candidate for GARP Investors

DR HORTON INC (NYSE:DHI) stands out as a compelling pick for investors seeking growth at a reasonable price (GARP). The company, one of the largest homebuilders in the U.S., meets key criteria from Peter Lynch’s investment strategy, balancing solid growth with sound financial health and an attractive valuation.

Why DHI Fits the GARP Approach

• Strong Historical Growth: DHI has delivered an impressive 5-year average EPS growth of 27.63%, well above the minimum 15% threshold in Lynch’s strategy. While recent earnings have softened, the long-term trend remains robust.
• Reasonable Valuation: With a PEG ratio of 0.34 (far below Lynch’s preferred threshold of 1), the stock appears undervalued relative to its growth potential. The P/E ratio of 9.32 is also below both the industry and S&P 500 averages.
• Healthy Balance Sheet: The company maintains a conservative debt profile, with a debt-to-equity ratio of 0.26, well below the 0.6 limit Lynch favored. Its current ratio of 5.12 indicates strong short-term liquidity.
• Profitability: DHI’s return on equity (ROE) of 17.64% exceeds Lynch’s 15% benchmark, reflecting efficient use of shareholder capital.

Fundamental Strengths

Our fundamental analysis report rates DHI a 7 out of 10, highlighting its excellent profitability and financial health. Key takeaways:

• High Margins: Operating margins of 16.33% rank in the top 11% of the industry.
• Dividend Growth: The company has raised dividends for over a decade, with a 14.84% annual growth rate.
• Share Buybacks: DHI has reduced shares outstanding over time, a positive signal for long-term investors.

While near-term revenue and earnings growth may slow, the company’s strong market position and disciplined financial management make it a viable candidate for a GARP-focused portfolio.

For more stocks matching the Peter Lynch strategy, explore our Peter Lynch Stock Screener.

Disclaimer

This is not investing advice. The observations here are based on current data, but investors should conduct their own research before making decisions.