Critical Review: Forestar Group (NYSE:FOR) vs. LGI Homes (NASDAQ:LGIH)

LGI Homes (NASDAQ:LGIH) and Forestar Group (NYSE:FOR) are both small-cap finance companies, but which is the superior stock? We will contrast the two businesses based on the strength of their dividends, institutional ownership, earnings, valuation, profitability, analyst recommendations and risk.

Analyst Recommendations

This is a summary of current ratings and target prices for LGI Homes and Forestar Group, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
LGI Homes	2	1	2	0	2.00
Forestar Group	0	4	2	0	2.33

LGI Homes presently has a consensus price target of $74.63, suggesting a potential upside of 95.71%. Forestar Group has a consensus price target of $31.75, suggesting a potential upside of 29.08%. Given LGI Homes’ higher possible upside, equities research analysts clearly believe LGI Homes is more favorable than Forestar Group.

Volatility & Risk

LGI Homes has a beta of 1.86, meaning that its stock price is 86% more volatile than the S&P 500. Comparatively, Forestar Group has a beta of 1.45, meaning that its stock price is 45% more volatile than the S&P 500.

Earnings & Valuation

This table compares LGI Homes and Forestar Group”s gross revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
LGI Homes	$1.71 billion	0.52	$72.55 million	$3.13	12.18
Forestar Group	$1.66 billion	0.75	$167.90 million	$3.27	7.52

Forestar Group has lower revenue, but higher earnings than LGI Homes. Forestar Group is trading at a lower price-to-earnings ratio than LGI Homes, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares LGI Homes and Forestar Group’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
LGI Homes	4.25%	4.08%	2.13%
Forestar Group	9.90%	9.76%	5.39%

Insider & Institutional Ownership

84.9% of LGI Homes shares are owned by institutional investors. Comparatively, 35.5% of Forestar Group shares are owned by institutional investors. 12.6% of LGI Homes shares are owned by company insiders. Comparatively, 0.5% of Forestar Group shares are owned by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock is poised for long-term growth.

Summary

Forestar Group beats LGI Homes on 7 of the 13 factors compared between the two stocks.

About LGI Homes

LGI Homes, Inc. designs, constructs, and sells homes. It offers entry-level homes, such as attached and detached homes, and active adult homes under the LGI Homes brand name; and luxury series homes under the Terrata Homes brand name. The company also engages in the wholesale business, which include building and selling homes to large institutions looking to acquire single-family rental properties. It serves customers in Texas, Arizona, Florida, Georgia, New Mexico, Colorado, North Carolina, South Carolina, Washington, Tennessee, Minnesota, Oklahoma, Alabama, California, Oregon, Nevada, West Virginia, Virginia, Pennsylvania, Maryland, and Utah. LGI Homes, Inc. was founded in 2003 and is headquartered in The Woodlands, Texas.

About Forestar Group

Forestar Group Inc. operates as a residential lot development company in the United States. The company acquires land and develops infrastructure for single-family residential communities. It sells its residential single-family finished lots to local, regional, and national homebuilders. The company was incorporated in 2005 and is headquartered in Arlington, Texas. Forestar Group Inc. operates as a subsidiary of D.R. Horton, Inc.