Why Investors Froze out Lennar Stock in December

Homebuilder Lennar (NYSE: LEN) couldn't build any gains for its shareholders as 2025 came to an end. Its share price fell by almost 22% across December due to two major factors -- continued weakness in U.S. homebuilding and quarterly results that missed the bottom line.

Not safe as houses

Of the pair, by far the more impactful was Lennar's fiscal fourth quarter and full-year 2025 earnings release. This was published on Dec. 16, and revealed that the company's revenue for the quarter slid by 6% year-over-year to just under $9.4 billion. Worse, its net income not in accordance with generally accepted accounting principles (GAAP) cratered by 53% to $514 ($2.03 per share).

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Although Lennar handily beat the consensus analyst top-line estimate of slightly over $9 billion, it whiffed notably on non-GAAP (adjusted) net income. Pundits tracking the stock were modeling $2.21 per share.

It isn't necessarily a sell-the-shares-right-now emergency when a company misses a prognosticator estimate or two. However, Lennar's bottom-line swing and miss came at a generally gloomy time for the U.S. homebuilding industry, and this uncomfortable combination negatively affected sentiment on the company.

In the last three months of 2025 for which we have official federal government data -- August, September, and October -- housing starts (a key indicator of homebuilding activity) fell significantly more than they grew. The August month-over-month change was a decline of 9.1%, followed by a slight (1.2%) uptick in September. October saw another slide, by 4.6%.

Over the course of the year, housing starts are expected to have fallen a queasy 7% compared to 2024. That's according to a forecast by the National Association of Home Builders (NAHB) cited in a recent article on the housing market published in The Washington Post.

And 2025 was supposed to be a boom year, on the back of a humming economy and an incoming presidential administration considered more favorable to business interests such as the construction industry.

Many homebuilders (and real estate industry participants generally) were also hoping for more aggressive Federal Reserve (Fed) cuts than they ultimately got. Lower rates mean cheaper mortgages, which -- all things being equal -- increases demand for housing.

A fine company at a gloomy time

So in the eyes of many investors, Lennar was considered an underperforming company in an unfavored sector of the economy. I don't think that's necessarily fair.

First of all, it has managed to remain one of this country's elite homebuilders, consistently landing near the top in terms of total closings and revenue.

Secondly, it has a solid approach to the market that works, with its popular "everything's included" pricing model making its already attractive home stock even more compelling for buyers. Finally, its recently adopted "land light" operating model allows it to focus more sharply on its core strength, building homes.

Given all that, I think Lennar was unfairly punished by Mr. Market last month. The stock has recovered to some degree since, but it still looks undervalued to me. I consider it a bargain buy.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lennar. The Motley Fool has a disclosure policy.