Does D.R. Horton Stock Still Have Momentum?

There’s an old saying that goes something like this: The best time to plant a tree is 20 years ago. The second-best time is today.
I think of that now as I look at the extremely strong sales and earnings results that the nation’s largest homebuilder, D.R. Horton (NYSE: DHI), reported this week.
The D.R. Horton earnings report showed net home sales increased 19% to 8,477 and the value of those homes increased even more, about 22%, to reach $2.5 billion. Net income rose a staggering 44% to $238.9 million. The company also noted that fiscal 2015 was the third straight year that it has seen growth of 30% of more in both home sale revenues and homebuilding pretax income.
So what does this have to do with trees?
Well, if we’ve learned anything about housing over the past decade, we’ve learned that it can be a boom-and-bust industry. And – D.R. Horton’s strong results notwithstanding – when you look at the company’s stock price, you have to wonder if it may be approaching the end of a very good run.
In other words, maybe the best time to buy D.R. Horton stock was several years ago, at the height of the housing bust.

D.R. Horton Stock Doubled

Certainly if you had invested in D.R. Horton stock when so many people were losing their homes or opting to rent rather than buy, you might have made enough for a down payment on a home of your own. The shares have more than doubled over the past five years. And they are still enjoying good momentum.
Year-to-date, D.R. Horton stock is up more than 26%.  The company has also just increased its dividend by 28%. All in all, things are going very well.
But the specter of rising interest rates and speculation that the housing recovery could run out of steam in the near future leave me wondering whether this stock, at its current price, is a good investment. Certainly it would have been better to buy the stock a few years back.

Another Housing Bust?

On the other hand, it’s pretty unlikely that when housing slows, it will crater the way it did in the 2000s, when we saw a housing bust of almost Biblical proportion. And, it’s also true that no one knows how much momentum is left in this housing market. Everyone knows that economic markets move in cycles. The trick is getting the timing right. D.R. Horton stock could continue to rally for years before slowing down, or it could slow down tomorrow. You just don’t know.
But the company is the largest homebuilder in the U.S. and has extensive exposure in multiple markets, so it seems to be in as good a position as any to whether any clouds on the housing horizon.
If you did buy this stock years ago, congratulations. If you’re thinking of buying today, proceed with a measure of caution and remember that no company can sustain this sort of growth forever.

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