Taylor Morrison Home Corp (NYSE:TMHC) – A Value Investor’s Undervalued Gem with Strong Fundamentals

Value investing focuses on finding stocks priced below their true worth while having strong financial foundations, a method introduced by Benjamin Graham and improved by Warren Buffett. This strategy looks for companies with good earnings, stable finances, and steady growth, all at a lower price. Using a "margin of safety," investors reduce risks linked to incorrect valuations or market changes.

One stock that fits this approach is Taylor Morrison Home Corp (NYSE:TMHC), a homebuilder active in 12 U.S. states. The company’s financial health and earnings potential suggest it may be undervalued, making it an interesting option for investors focused on value.

Valuation: A Notable Discount

The key to value investing is spotting stocks priced below their real value. TMHC’s valuation metrics are notable:

• Price/Earnings (P/E) Ratio of 7.03 – Much lower than the S&P 500 average of 27.91 and cheaper than 84% of its peers in the Household Durables industry.
• Price/Forward Earnings of 7.10 – Also below the industry and market average, pointing to steady earnings at a low price.
• Enterprise Value/EBITDA and Price/Free Cash Flow – Both ratios show TMHC is priced better than over 75% of competitors.

These numbers match Graham’s idea of buying stocks at a big discount to their true value. While the PEG ratio (which includes growth) is higher, the company’s strong earnings may support a higher multiple.

Profitability: Reliable Earnings

A low price only matters if the company is financially strong. TMHC performs well here:

• Profit Margin of 10.72% – Better than 86% of industry peers.
• Operating Margin of 15.01% – One of the best in the sector, showing efficient management.
• ROIC of 11.58% – Above its cost of capital, meaning it creates value.

These metrics highlight TMHC’s ability to produce earnings, a key factor for value investors who prefer steady returns over risky growth.

Financial Health: A Stable Position

Weak finances can be a trap, but TMHC shows strength:

• Altman-Z Score of 3.85 – Far above the danger level, indicating low bankruptcy risk.
• Debt/Equity Ratio of 0.35 – Less debt than many peers.
• Current Ratio of 5.97 – Enough cash to handle short-term needs.

Though the Quick Ratio is slightly concerning, the overall financial picture is solid, important for investors looking for long-term holdings.

Growth: Steady Progress

Value investing doesn’t chase fast growth, but TMHC offers reasonable expansion:

• EPS Growth (3-Year Avg.): 23.42% – Much higher than many peers.
• Revenue Growth (Last Year): 13.77% – Showing strong demand.
• Forward EPS Growth Estimate: 8.96% – A sustainable rate, though slower than before.

This trend supports the idea that TMHC isn’t just cheap but also able to grow over time.

Why This Matters for Value Investors

The mix of low price, strong earnings, and financial stability fits Graham’s margin-of-safety principle. TMHC’s numbers suggest it’s undervalued compared to its earnings and industry position, lowering risk while offering potential gains as the market adjusts.

For investors searching for similar opportunities, our Decent Value Stocks screen lists stocks meeting these criteria.

Disclaimer: This analysis is not investment advice. Do your own research or consult a financial advisor before making investment decisions.