Taylor Morrison Home currently trades at $63.45 per share and has shown little upside over the past six months, posting a middling return of 4.5%.

Is now the time to buy Taylor Morrison Home, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Why Is Taylor Morrison Home Not Exciting?

We don't have much confidence in Taylor Morrison Home. Here are three reasons why TMHC doesn't excite us and a stock we'd rather own.

1. Backlog Declines as Orders Drop

We can better understand Home Builders companies by analyzing their backlog. This metric shows the value of outstanding orders that have not yet been executed or delivered, giving visibility into Taylor Morrison Home’s future revenue streams.

Taylor Morrison Home’s backlog came in at $3.36 billion in the latest quarter, and it averaged 13% year-on-year declines over the last two years. This performance was underwhelming and shows the company is not winning new orders. It also suggests there may be increasing competition or market saturation.

2. EPS Took a Dip Over the Last Two Years

Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.

Sadly for Taylor Morrison Home, its EPS declined by 3.2% annually over the last two years while its revenue grew by 1.1%. This tells us the company became less profitable on a per-share basis as it expanded.

3. Free Cash Flow Margin Dropping

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

As you can see below, Taylor Morrison Home’s margin dropped by 9.4 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Taylor Morrison Home’s free cash flow margin for the trailing 12 months was 4.6%.

Final Judgment

Taylor Morrison Home isn’t a terrible business, but it isn’t one of our picks. That said, the stock currently trades at 7.2× forward P/E (or $63.45 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're fairly confident there are better investments elsewhere. We’d suggest looking at the Amazon and PayPal of Latin America.

Stocks We Would Buy Instead of Taylor Morrison Home

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