Still a small number of companies reported financial statements to the Securities and Exchange Commission (SEC) last week. Companies with fiscal years ended November and a few with fiscal quarters ended December. The larger volume will appear in the coming weeks so stay tuned.
Several large home builders report their annual financial statements ended November and we have seen some slowdown. Sales growth is down but remains above 20% and profit margins continue up with inventories lower.
Q4 2022 hedge fund letters, conferences and more
These are not the attributes of a downturn and provide evidence that interest rates have done little to slow the housing boom. Not a surprise when you consider the long uninterrupted advance in home prices. That is a firm inflation expectation now and explains why the increase in the cost of borrowing has prompted people to buy now.
Housing downturns in the past report sales decline from about 25% at the peak to about -8% at the lowest point. The longest and steepest downturn was associated with the financial crisis when sales growth fell from 20% to -30% from 2005 to 2010. Sales growth peaked this cycle at 36% last year and remains above 20%.
Higher Interest Rates Needed?
That means that interest rates will need to be much higher to slow down housing and reduce inflation. Steep housing declines of the past have been associated with higher interest rates and reduced availability of loanable funds. We have seen a bit of the former but so far there is no constraint on mortgage funds availability.
The opposite in fact, as recently we have seen the Fed flood the system with liquidity to restrain interest rates before the midterms. That means there is a liquidity crisis ahead as the Fed continues to tighten monetary policy.
Look at accelerating companies in their acceleration phase, such as Apogee Enterprises Inc.:
Apogee Enterprises Inc. $45.010 BUY This Rich Company Getting Better
Apogee Enterprises Inc (NASDAQ:APOG) has been a profitable company with persistently high cash return on total capital of 9.6% on average over the past 20 years. Over the long term, the shares of Apogee Enterprises Inc have declined by 58% relative to the broad market index.
The shares have been highly correlated with trends in Growth Factors. The dominant factor in the Growth group is EBITDA margin which has been 84% correlated with the share price with a two-quarter lead.
Strong Growth
Currently, sales growth is 9.9% which is high in the record of the company and higher than last quarter. The shares have been correlated with the direction of sales growth.
Margins continue to improve
The company is recording a rising gross profit margin. SG&A expenses are low in the record of the company and rising. That implies that the company has limited scope for further cost containment and rising costs are slowing the EBITD growth rate relative to sales. However, the gross margin is rising at a faster rate than SG&A expenses, producing a rising EBITD margin.
Strong Cashflow
As a percentage of sales, free cash flow measures the relationship between cash flow growth and capital expenditures. Lower capital expenditures have been supporting free cash flow for quite some time. The stronger gross margin and lower costs is producing an acceleration in the EBITDA profit margin thereby accelerating free cash flow growth for a fourth consecutive quarter.
Strong Buy
More recently, the shares of Apogee Enterprises Inc have advanced by 75% since the August, 2020 low. The shares are trading at the upper-end of the volatility range in a 29-month rising relative share price trend.
The current depressed share price provides a good opportunity to buy the shares of this evidently accelerating company.
The more stable the pot appears, the better the attributes. Green and gold are good. Red is bad and the more intense the red the more urgent the call to action.
