Taylor Morrison Home has been treading water for the past six months, recording a small loss of 3.7% while holding steady at $59.14. The stock also fell short of the S&P 500’s 11.3% gain during that period.
Is now the time to buy Taylor Morrison Home, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free for active Edge members.
Why Is Taylor Morrison Home Not Exciting?
We're swiping left on Taylor Morrison Home for now. Here are three reasons you should be careful with TMHC and a stock we'd rather own.
1. Backlog Declines as Orders Drop
Investors interested in Home Builders companies should track backlog in addition to reported revenue. This metric shows the value of outstanding orders that have not yet been executed or delivered, giving visibility into Taylor Morrison Home’s future revenue streams.
Taylor Morrison Home’s backlog came in at $2.34 billion in the latest quarter, and it averaged 14.5% year-on-year declines over the last two years. This performance was underwhelming and shows the company is not winning new orders. It also suggests there may be increasing competition or market saturation. 
2. Revenue Projections Show Stormy Skies Ahead
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Taylor Morrison Home’s revenue to drop by 13.6%, a decrease from its 6.8% annualized growth for the past five years. This projection doesn't excite us and indicates its products and services will face some demand challenges.
3. Recent EPS Growth Below Our Standards
Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.
Taylor Morrison Home’s weak 2.6% annual EPS growth over the last two years aligns with its revenue trend. This tells us it maintained its per-share profitability as it expanded.
Final Judgment
Taylor Morrison Home isn’t a terrible business, but it doesn’t pass our quality test. With its shares underperforming the market lately, the stock trades at 9.2× forward P/E (or $59.14 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're pretty confident there are superior stocks to buy right now. Let us point you toward one of our top digital advertising picks.
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