sternalot

Homebuilders, with the exception of NVR, are serial capital murderers.

I like the concept, but I don't like the price much, as others have mentioned. I am trying to figure out why SG&A is almost $50m higher today than it was in the prior peak, but sales are $100m lower. Someone mentioned some acquisitions, but they don't seem to have added much value. As I see it: Peak revenue should be ~$850 or another $150m in sales. Historically, the company has gotten 20% incremental margins over time, but I will give them 28% due to what MIGHT be a structurally higher gross margin (I suspect it might just be mix though). So, my math gets me to $0.55 in incremental earnings, for peak earnings around $1.60. Because the company is cyclical, I would give it lower multiple of 15x (should probably go lower for PEAK, but giving them benefit for being preferred manufacturer in consolidated niche industry). We are maybe 2 years out from peak (residential cycles normally around 6-8 years), so they may generate $150m in cash on top of the $250m on the balance sheet ($7 per share). That gives me a price target of ~$31, and that is prior to discounting based on my return expectations. In short, I'm not a buyer today, unless you can tell me why peak revenues should be substantially higher, or that I am way off on my incremental.

1000000% agree. The trick to compounding is finding new ways to allocate capital. By determining the return on future incremental capital employed, you should get a better sense for where ROIC and also ROE, all else equal, should move in the future.