Why D.R. Horton Stock Popped Today

Key Points

• D.R. Horton beat on both the top and bottom lines this morning.

• The homebuilder's profits declined, but not as much as feared, and management has been buying back stock.

• D.R. Horton stock looks attractively priced at just 10 times earnings.

• 10 stocks we like better than D.R. Horton ›

Shares of D.R. Horton (NYSE: DHI), one of the nation's biggest homebuilders, soared 14.4% through 11:40 a.m. ET Tuesday after crushing on its third-quarter earnings report.

Analysts forecast $2.90 per share in profit on $8.8 billion in sales for Horton in its fiscal third quarter. Horton earned $3.36 per share instead, and did $9.2 billion in business.

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D.R. Horton Q3 earnings

Not all the news was good. D.R. Horton beat earnings soundly, but its $3.36 per share profit still declined 18% versus Q3 2024. Net profit -- as opposed to profit per share -- declined an even more dramatic 24%. Sales were down only 7%.

Reading between the lines, what does this tell investors? Well, two things pop out: The fact that profits declined more steeply than revenue means D.R. Horton's net profit margin contracted in the quarter. Conversely, the fact that earnings per share declined less steeply than net profit suggests Horton spent a bit of time (and money) buying back shares, to concentrate profits among what shares remained.

Confirming this hunch, Horton noted that its share count fell by 9% year over year.

Is D.R. Horton stock a buy?

Still, business isn't great for the homebuilder right now. Executive Chairman David Auld noted that "new home demand continues to be impacted by ongoing affordability constraints and cautious consumer sentiment," forcing Horton to discount prices and offer "sales incentives" to keep moving inventory.

Management's sales guidance for the year -- $33.7 billion to $34.2 billion -- is also slightly below analyst forecasts, which implies the situation probably isn't improving, or at least not yet. Still, at a P/E ratio of barely 10 times and paying a 1.2% dividend, D.R. Horton doesn't look overpriced to me.

I'd lean more toward buy than sell on this one.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends D.R. Horton. The Motley Fool has a disclosure policy.