Companies to Watch for Housing Market Insight
Erin is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
There are a dozen factors we call “housing market indicators” to determine the health and strength of the housing market. The indicators include, but are not limited to, number of homes on the market, new construction, mortgage interest rates, number of rentals, and home prices. But are there other ways to determine the health of the housing market?
A look at the industries that supply the housing market can also give us an idea for whether or not the housing market is improving. For instance, the housing market greatly affects suppliers of construction materials such as lumber, flooring, or paint (chemicals), or lawn care companies, and actual home-building companies. A look at the successes or failures in recent quarters of these types of companies can help shed light on how well the housing market is doing.
The homebuilder Toll Brothers Inc. (NYSE: TOL) recorded a loss of $2.8 million (2 cents per share) in the first quarter of fiscal 2012 compared with a profit of $3.4 million (2 cents per share) in the same quarter of fiscal 2011. Revenues went down by 4%, but net signed contracts rose 45%. The company's cancellation rate (6.2%) was consistent with the company's pre-downturn historical averages. Judging by profits alone, this is not a good sign. However, it is promising that signed contracts increased significantly, indicating future profits could be right around the corner.
Real estate website Zillow (NASDAQ: Z) stock has done extremely well in its first partial year. Just last week the company reported record revenue of $19.9 million, up 108% over Q4 2010, and net income of $0.9 million. The company also reported record traffic to its website, a strong sign that people are looking to buy homes.
Eastman Chemical (NYSE: EMN) manufactures and sells a portfolio of chemicals, plastics, and fibers, that are used in many capacities around the world, including paint and composite wood flooring used in homes, and polymers used in home appliances. Fourth-quarter revenues for the company rose 18% year over year to $1.7 billion, driven by increased selling prices and higher sales volumes. Unfortunately the numbers do not break down in such a way as to discern how much of the revenue was from sales related to home construction, but it is interesting to keep in mind.
What new house doesn't need a new floor? Lumber Liquidators (NYSE: LL) the largest hardwood flooring retailer in the United States, missed the mark with fiscal year 2011 reported earnings, but had a very strong fourth-quarter. Net sales were up by 13.9%, while comparable store net sales increased 1.9%. The company opened seven new stores in the fourth quarter as well. Net income increased 42.9% to $8.5 million in the fourth quarter, up from $5.9 million the year before.
Finally, what new home doesn't need a lawn-mower to go with it? The Toro Company (NYSE: TTC) enjoyed greener grass and greener earnings in the first fiscal quarter of 2012. Homeowners helped the company bring in $12.6 million in earnings (up 10.9% from 2011) in the company's residential segment.
Using these companies as an alternative or supplement to the more traditional housing market indicators, one can glean that the market is growing again. However, the housing market needs several indicators, and these companies should not replace the formula used by the professional associations and the government. But for individuals seeking an alternative point of view to the numbers they can enhance or shed new light on the situation.
Motley Fool newsletter services recommend Lumber Liquidators and Zillow. The Motley Fool owns shares of Lumber Liquidators. ErinAnnie has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.