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Let's talk about the popular Lennar Corporation (NYSE:LEN). The company's shares received a lot of attention from a substantial price movement on the NYSE over the last few months, increasing to US$138 at one point, and dropping to the lows of US$103. Although investors should be wary that a recent spin-off may be impacting the share price. 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 Lennar's current trading price of US$106 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Lennar’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
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What Is Lennar Worth?
The share price seems sensible at the moment according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. We’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 7.58x is currently trading slightly below its industry peers’ ratio of 8.72x, which means if you buy Lennar today, you’d be paying a reasonable price for it. And if you believe Lennar 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. Is there another opportunity to buy low in the future? Since Lennar’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.
Check out our latest analysis for Lennar
What kind of growth will Lennar generate?
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 -20% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Lennar. This certainty tips the risk-return scale towards higher risk.
What This Means For You
Are you a shareholder? LEN 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 beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on LEN, take a look at whether its fundamentals have changed.