- Passes multiple green flags, indicating long term growth.
- Deep Value with a piotroski score of 8 and an analysis score of 7
- Consistently decreases the number of shares outstanding in the marketplace.
About the Company:
In the words of yahoo finance, NVR(NASDAQ: NVR) “operates as a homebuilder in the United States. The company operates through Homebuilding and Mortgage Banking segments. It engages in the construction and sale of single-family detached homes, townhomes, and condominium buildings under the Ryan Homes, NVHomes, Fox Ridge Homes, and Heartland Homes trade names.”
NVR is an Interesting Company to Analyze because –
- Has increased by over 25000% in the past twenty years.
- Has almost 200 more days where the stock price increased in value than days where it dropped in value.
- One of the largest homebuilding companies
- Decreasing Shares & Constant Volume
- One of the first things you learn when you take economics is that supply & demand controls everything, especially price, in a marketplace. The majority of analysts that I know, including myself at times, spend a lot of time developing and looking for complicated factors in order to decide whether or not they should invest in a company. This green flag “Decreasing Shares & Constant Volume” does the exact opposite of that. Basically this factor takes on the idea that if supply decreases, and demand stays roughly the same over an extended period of time the price is going to rise based solely on basic economics.
- I have never used this green flag before, and decided that this analysis would be a good beta test for this idea. When looking at the variables I had plotted on NVR, such as volume and shares outstanding on a graph that shows the past twenty years of the stock’s price and the past twenty years of data of the plotted variables. So, I went ahead and created a screener to test my theory. I looked for companies that, over the past year, decreased the number of shares outstanding on the marketplace. I then looked for companies that had a fairly constant volume over the past quarter, meaning that there wasn’t a difference of more than 5% in either direction when comparing today’s volume with the company’s volume a quarter ago. I then backtested this screen over the past twenty years and here are the results. As you can see, the results may not be incredibly smooth, but they still beat the overall market by a fairly decent margin.
- High Piotroski Score
- The Piotroski Score is one of the number one ways to assess value in a security. it was developed by Professor Joseph Piotroski at the University of Chicago. This score, out of 9, can be a good indicator of whether or not one should invest in a certain stock. Here is the expanded formula itself.
- NVR has an incredibly high Piotroski score of 8/9. This indicates that the company has deep value. Deep value is typically one of the biggest green flags I look for when analyzing a company. Now, just to make sure let’s create a screen that looks for every company that has a piotroski score of exactly 8, and run a simulation(a backtest) over the past twenty years to see exactly how we would do if we purchased stocks based solely on the fact that they have a piotroski score of 8. Overall, the screen did incredibly well – beating the market by a significant margin.
- Perfect Analysis score
- The Analysis score was designed by me, Tyler McCain, as a proprietary green flag formula to be used within the Equities Lab system. This formula, much like the piotroski score, looks for specific value indicators and develops a score from 0-7. However, one thing that this score does, and why it works well in conjunction with the piotroski score, is that it looks for a growth in value over the past year. For reference here is the expanded formula.
- Surprisingly, NVR has a perfect analysis score, something that I don’t see in very many of the companies I’ve analyzed. Now, much like with piotroski, this green flag is useless if it doesn’t outperform the S&P over the past twenty years. I went ahead and created a screen that only looked for companies that had a perfect analysis score. I then backtested this over the past twenty years and here are the results. As you can see, this score not only outperformed the S&P by a considerable amount, it also outperformed the Pioroski screen we created earlier.
- Winning Days vs. Losing Days
- This analysis is more technical than it is fundamental, but it still has the ability to tell us a lot about a company’s history and potential future. We created two variables that counted the number of winning days and losing days since we started collecting data on NVR twenty years ago. We then took the difference of these two scores as (winning days – losing days). Positive results means that the stock has had more up days than down days.
- Today, NVR has a difference of 174 days between the total number of winning and losing days. To test to see whether this is a good or bad thing went ahead and created a screener, that only found companies that have 174 more winning days than losing days. I then backtested this strategy, and here are the results. Since late 2002 this strategy consistently beats the market resulting in over 250% gains. This, like all other green flags points to the fact that NVR will continue to increase in price.
NVR is an incredibly expensive stock with the share price coming in at just over $1,500. However, if the quantitative fundamentals explored in this article yield the same results as they historically have than the future of NVR is incredibly bright. In the case of NVR, green flags were raised at almost every point in the analysis and the underlying financial data and historical figures make this stock a promising long term investment.