Why DR Horton stock fell this week

stock DR Horton (DHI 1.70%)The largest U.S. homebuilder fell this week after the company released disappointing estimates in its fiscal first-quarter earnings report.

The news comes as stocks of homebuilders such as DR Horton have seen their returns plummet dramatically over the past year or two as a shortage of available homes and homeowners’ unwillingness to sell or lose low-cost mortgages has driven demand for new homes. This came after an increase.

But the company missed estimates for revenue in its earnings report, and slowing sales growth also seemed to unnerve markets. As a result, the stock fell 8.8% for the week, according to data from S&P Global Market Intelligence.

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Horton has had a good quarter, but it’s not good enough.

Revenue growth at DR Horton and other homebuilders is slowing after an initial boom, and investors appear to be adjusting their expectations.

Horton said revenue for the quarter rose 6% to $7.73 billion, beating expectations of $7.6 billion. Other key indicators also showed solid growth, with closed homes increasing 12% to 19,340 and value increasing 8% to $7.3 billion. Net sales orders rose 38% to $6.8 billion, demonstrating strong demand, but backlog fell 12% as more homes were built than ordered.

Horton’s margins took a hit this quarter due to higher labor and material costs, and operating profit fell slightly from $1.27 billion to $1.25 billion. Net income decreased slightly, but earnings per share increased from $2.76 to $2.82 due to the decrease in shares outstanding. This missed estimates by $2.88.

The company also repurchased nearly $400 million worth of stock in the quarter as it continues to return capital to shareholders through dividends and share repurchases.

President Donald R. Horton said: “We are well positioned to meet changing market conditions with our affordable products and flexible lot supply, and we are focused on transitioning our inventory to maximize revenue and capital efficiency in each community.”

What’s next for DR Horton?

The company slightly raised its sales guidance for this year to $36 billion to $37.3 billion from the previous $36 billion to $37 billion. However, this forecast means that sales growth will continue to slow, rising by just 3%.

While there wasn’t anything particularly disappointing in the report, the stock appears to be recovering to average valuation. Nonetheless, the estimated shortage of 4 million homes in the U.S. will drive continued demand for DR Horton’s services.