Why D.R. Horton (DHI) Stock Is Slumping Today

NEW YORK (TheStreet) -- Shares of D.R. Horton Inc. (DHI) are lower by 3.14% to $21.26 in mid-afternoon trading on Monday, as home builder stocks react negatively to the National Association of Realtors report that U.S. homes sales declined 1.8% in August, the Wall Street Journal reports.

One major factor resulting in the drop was that investors began to move away from the housing industry as they expressed doubts regarding the sector's strength, the Journal said.

Sales of previously owned homes dropped in August to an annual rate of 5.05 million, down 5.3% from August 2013, ending four consecutive months of gains, the Journal noted.STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

The decrease in home sales showcased how fewer investors were making purchases. Investor shares of overall sales fell to 12% in August, the lowest level since late 2009, from 16% for July, the Journal added.

Other home builder stocks falling today include PulteGroup Inc. (PHM) , lower by 2.76% to $18.30, Lennar Corp. (LEN) , down by 2.39% to $40.05, and KB Home (KBH) , lower by 2.89% to $16.81.

Separately, TheStreet Ratings team rates D R HORTON INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate D R HORTON INC (DHI) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth greatly exceeded the industry average of 5.3%. Since the same quarter one year prior, revenues rose by 26.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The debt-to-equity ratio is somewhat low, currently at 0.69, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels.
  • D R HORTON INC's earnings per share declined by 23.8% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, D R HORTON INC reported lower earnings of $1.34 versus $2.74 in the prior year. This year, the market expects an improvement in earnings ($1.54 versus $1.34).
  • In its most recent trading session, DHI has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • You can view the full analysis from the report here: DHI Ratings Report

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