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NVR: Still Undervalued Despite The Surge This Year

Aug. 31, 2023 5:38 AM ETNVR, Inc. (NVR)DHI, LEN3 Comments
The Alpha Oracle profile picture
The Alpha Oracle


  • Warren Buffett's Berkshire Hathaway invested $814 million in homebuilders in Q2 2023.
  • NVR, one of the recipients, has strong fundamentals and is expected to benefit from favorable supply-demand dynamics.
  • The stock is undervalued, trading at lower multiples compared to historical averages, presenting an upside potential if high mortgage rates continue.

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Aerial view of Single-family homes

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This article was written by

The Alpha Oracle profile picture
Independent research analyst with a Master's degree in Finance and a background in financial research. My research is focused on finding undervalued stocks following the steps of great minds such as Benjamin Graham and Warren Buffett. You will find articles about companies that benefit from the current macroeconomic environment and gems that fly under the market's radar. The market inefficiency creates a lot of opportunities to be realized in the long term, however, the stock prices show a random walk in the short term. Therefore, my investment horizon is mostly 5+ years. I do my own research and do not use any AI tools for my articles. These are my personal opinions and do not represent investment advice of any kind. Please conduct your own research and analysis before making investment decisions.

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Comments (3)

This is way too optimistic.

1) Calculate with 4.08M shares, not 3.26M to consider all the stock options outstanding but not paid/exercised yet.
2) Revenue and margins have declined compared to 2022 even with discounting of homes and mortgage buydowns to lure customers. Quite sure this will continue as the market continue to tighten.
3) 2022 is for sure an outlier in both revenue, margin and profit. Going back to mean and add a margin of safety implies a free cashflow of around 1B USD moving forward, excluding change in working capital.
4) Add in working capital increase and you can expect 750M in FCFF.
5) DCF on 750M increasing conservatively with 10% discount rate and a 5% growth rate gives you a fair value of around 3800USD/share.
The Alpha Oracle profile picture
@meng123 Good points. Thanks for the comment!

You could use a range between 4.08M and 3.26M for outstanding shares, assuming not all of them get exercised. That would indeed decrease the upside potential I see, but there is still a significant upside.

I guess this is where I differ from the popular view as a contrarian. I agree 2022 was an exceptionally good year and I do expect profitability to go down, but not with a sudden drop to below 40% adjusted ROA. I expect a slower transition as the extra demand fades away.

Again, it's important to realize that my thesis has a long-term investment horizon. I think the homebuilder space is still cheap, with NVR one of the more undervalued ones. It should eventually find its true value.
@The Alpha Oracle I would be very cautious.

1) This market tightening is not normal and has created "artificial" demand on the new construction market. I do not know how this will end or what will happen.

2) The housing market is inherently cyclical. You need to look back to 2009 to see the previous low in revenue for NVR. From 2007-2009 the revenue dropped 47% from 5.05B to 2.68B. It took until 2015 to recover (six whole years).

3) Even if there is no 40% drop, a sideline move over 5-10 years would create a similar outcome, as the business and price converges to a more sustainable equilibrium. So even if you think long term, which I agree on, you will incur a large opportunity cost by investing in this company today.
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