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NVR, Inc.: Risk-Reward Finely Balanced

Jun. 09, 2020 2:25 PM ETNVR, Inc. (NVR)5 Comments


  • I like NVR’s flexible acquisition lot strategy which mitigates land development risk.
  • The mortgage division which accounts for c.10% of total group income may have to contend with a spike in credit default risk.
  • Housing-related data has been largely encouraging over the last month or so.
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Without stable shelter, everything else falls apart. - Matthew Desmond

If you follow me on Twitter, you’ll know that I’ve always kept a keen eye on the goings-on in the housing sector. I don’t want to make grand pronouncements suggesting that we’ve effectively moved away from the worst, but some of the housing data that has come out in the recent past has been rather promising (which I will highlight later), pushing me to explore some stock opportunities in this space.

NVR, Inc. (NYSE:NVR) is one of the homebuilders I’ve got on my watchlist but the recent run-up in the price makes me wary (up 70% from March lows). The company operates under two complementary business units- Homebuilding and Mortgage banking. Under homebuilding, which is their primary business, they construct and sell single-family detached homes, town homes, and condominium buildings, which are all primarily constructed on a pre-sold basis. These are sold under three brand names - Ryan Homes (for first-time and first-time move-up buyers), NV Homes (for buyers with more discretionary architectural taste), and Heartland Homes (for buyers interested in luxury homes). To supplement their activities in the primary business, they also run a mortgage banking service called NVR Mortgage (NVRM) where they earn revenue from mortgage origination fees, gains on sales of loans in the secondary market, and title fees.

Before I proceed with some of the key talking points of NVR, let me take a moment to highlight some of the interesting housing data that has caught my attention. I often find that investors, when gauging housing-related stocks, tend to be less considerate to the specific story of a company and tend to react to the broad housing-related macro data. I am not looking to debate the rights and wrongs of this basket-case approach but I can’t disregard it and thought it

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This article was written by

Michael A. Gayed, CFA profile picture
5x Dow & Founders Award Winner. Risk-On/Off $RORO, Junk-On/Off $JOJO, & $ATACX Portfolio Manager. Anticipate Crashes, Corrections, & Bear Markets With The Lead-Lag Report. Sign Up For 2 Weeks Free.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (5)

I am LONG. Management is one of the finest capital allocators in all industries, generating outstanding returns for long term investors. Grow revenue and FCF, buy back a bunch at low PE. Repeat. In March, it was selling at a super bargain. I also love that they never waste time on earning calls. Annual reports are clear, straight forward and easy to read. Amazing investment.
Gary Kime profile picture
This is a great stock, I have owned for years. Buy it right and put it away. They are very vertically integrated and their land acquisition strategy is the envy of the industry!
if they split the stock price 1:1000, robinhood traders will make it zoom :0
rdowey57 profile picture
“Credit Default Risk” would be from exposure to Mortgage Servicing. NVR makes money
On the origination and sells almost all of the loans immediately to a mortgage servicer. They don’t carry the loans on their books.
Author doesn’t know enough of the company. No skin in the game. You won’t know a business until you own it.
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