It is very rare feat, homebuilder NVR Inc. (NYSE: NVR) has achieved something unusual – simultaneously passing the strict criteria fundamental of three legendary investors: Warren Buffett, Joel Greenblatt, and Peter Lynch. This construction services company demonstrates impressive characteristics that align with multiple value investing philosophies.
Warren Buffett’s Patient Investor Strategy (100% Score)
The Buffett strategy, based on the principles outlined in “Buffettology,” emphasizes long-term value and durable competitive advantages. NVR excels across multiple Buffett criteria:
- Earnings Predictability: NVR shows consistently expanding earnings, with EPS growing from $63.50 to $463.35 over the past decade, demonstrating a robust 22.8% long-term growth rate.
- Debt Management: With earnings of $1.47 billion against $911.6 million in debt, NVR could pay off its entire debt in less than two years.
- Return on Equity: The company’s average ROE of 32.9% far exceeds Buffett’s 15% minimum threshold, showing sustained competitive advantage.
- Return on Capital: NVR’s 24.1% average return on total capital significantly surpasses Buffett’s 12% requirement.
Joel Greenblatt’s Earnings Yield Strategy (90% Score)
Greenblatt’s “Magic Formula” focuses on two key metrics: earnings yield and return on capital. NVR stands out in both areas:
- Earnings Yield: At 7.95%, NVR’s earnings yield reflects strong profitability relative to enterprise value.
- Return on Tangible Capital: With an exceptional return on capital, NVR ranks 7th among all stocks in Validea’s database.
- Combined Ranking: NVR places in the top 3rd percentile when both metrics are combined, indicating superior capital efficiency and value.
Peter Lynch’s P/E Growth Strategy (91% Score)
Lynch’s approach emphasizes the PEG ratio and consistent earnings growth. NVR demonstrates strength across multiple Lynch criteria:
- P/E/Growth Ratio: At 0.83 (P/E of 18.86 divided by 22.82% growth), NVR shows strong value relative to its growth rate.
- Sales and Scale: With $10.3 billion in sales and a P/E below 40, NVR meets Lynch’s criteria for large companies.
- EPS Growth: The 22.8% growth rate falls perfectly within Lynch’s preferred 20-50% range.
- Financial Strength: A debt-to-equity ratio of 21.34% indicates conservative financing.
Business Model and Market Position
NVR operates through two segments: homebuilding and mortgage banking. The company has built a strong presence across 36 metropolitan areas in 15 states and Washington, D.C., operating under the Ryan Homes, NVHomes, and Heartland Homes brands. Their business model demonstrates efficiency through positive free cash flow of $428.85 per share and effective capital management, as evidenced by their share reduction from 3.63 million to 3 million over five years.
This rare convergence of approval from three distinct investment strategies suggests NVR represents an interesting opportunity for value-oriented investors seeking strong fundamentals and disciplined growth.
Further Research