DR Horton Inc (NYSE:DHI): A GARP Candidate for Long-Term Investors

DR Horton Inc (NYSE:DHI) is one of the largest homebuilders in the U.S., constructing and selling single-family homes across 36 states. The company operates through multiple segments, including Homebuilding, Rental, Forestar (land development), and Financial Services.

Growth at a Reasonable Price (GARP) Investing

Investors often debate between growth and value strategies. Growth investing targets companies with strong earnings expansion, while value investing focuses on undervalued stocks. GARP (Growth at a Reasonable Price) blends both approaches, seeking companies with solid growth prospects trading at reasonable valuations.

Peter Lynch, a legendary investor, popularized this approach by emphasizing sustainable growth, reasonable valuations, and strong financial health. His strategy avoids overpriced high-growth stocks and financially unstable companies, favoring those with steady expansion and sound fundamentals.

Why DR Horton Inc (NYSE:DHI) Fits the GARP Criteria

Strong Historical Growth

• EPS Growth (5Y): 27.63% – DR Horton has delivered robust earnings growth over the past five years, exceeding Lynch’s minimum threshold of 15%.
• Revenue Growth (5Y): 15.91% – Consistent top-line expansion supports long-term sustainability.

Reasonable Valuation

• P/E Ratio: 9.59 – Well below the S&P 500 average of 28.88, indicating an attractively priced stock.
• PEG Ratio (5Y): -0.71 – While negative due to recent earnings fluctuations, the company’s historical growth suggests it remains reasonably valued relative to its past performance.

Financial Health & Profitability

• Debt/Equity: 0.27 – Below Lynch’s preferred threshold of 0.6, signaling conservative leverage.
• Current Ratio: 6.71 – Strong liquidity, far exceeding the minimum requirement of 1.
• ROE: 17.64% – Demonstrates efficient use of shareholder capital, surpassing Lynch’s 15% benchmark.

Dividend Stability

• Dividend Yield: 1.27% – While modest, the dividend has grown at 14.84% annually over the past decade, reflecting management’s commitment to shareholder returns.

Fundamental Analysis Summary

Our fundamental analysis report rates DR Horton Inc (NYSE:DHI) at 7 out of 10, highlighting:

• Strong profitability with industry-leading margins (Operating Margin: 16.26%).
• Solid financial health, backed by a low debt profile and high solvency.
• Moderate future growth expectations (EPS projected to grow at 10.77% annually).

While recent earnings have softened, the company’s long-term track record and reasonable valuation make it a candidate for GARP investors.

For more stocks matching Peter Lynch’s criteria, check our screener results here.