Ryland Group Inc. recently reported a first quarter loss, but thanks to improving home sales, investors are buying into the Westlake Village homebuilder, which is on track for its first profitable year since 2006.
The company was one of the top gainers on the LABJ Stock Index for the week ended May 2, with shares rising 21 percent to close at $22.99. (See page 38.) The stock got a boost when Ryland reported that orders for new homes in the first quarter jumped 46 percent compared with a year earlier, while its loss narrowed to $3 million from a loss of $17.4 million a year earlier.
Megan McGrath, a senior analyst with MKM Partners LLC in Stamford, Conn., said she likes Ryland’s trajectory.
“We have them being profitable the rest of the year. That’s what really matters,” she said.
If Ryland returns to profitability, it will join other publicly traded homebuilders benefiting from an improving housing market, including D.R. Horton Inc. of Fort Worth, Texas, and Miami’s Lennar Corp.
Drew Mackintosh, Ryland’s vice president for investor relations, said the company is closer to profitability thanks to a more selective approach, focusing on markets where it can build homes that will command higher prices. That means improving markets such as Houston, Indianapolis and Denver, where it had above-average sales in the first quarter.
“Since the downturn, some better parcels have become available close in to the cities,” Mackintosh said. “We’re consciously trying to get closer to the city centers. You’re going to get a better sales pace and a better average sales price.”
Still absent from the list of profitable homebuilders is West L.A.’s KB Home, which saw its stock price rise only slightly during the week after a steady drop through March and April. Unlike Ryland, KB Home saw orders fall in the first quarter, results of which were reported a month ago.
The company has suffered since its preferred mortgage lender, MetLife Home Loans, left the business in January, leading to a spike in cancelled sales.
David Williams, an equity research analyst at Williams Financial Group in Dallas, said he’s projecting a loss of 90 cents a share for KB this year. The company also is hampered by its land holdings in far-flung markets where demand isn’t expected to return for some time.
“When the demand does come back, they’re going to find it later in the cycle,” Williams said. “They have some land closer to city centers, but they have a larger portion in those further-out areas.”
