A Homebuilder Homerun

Sixteen months ago, in the Daily Journal, Porter made the case that Hovnanian Enterprises (HOV) had quietly become a far better business than almost anyone on Wall Street understood – and that it was on its way to becoming a genuine long-term compounder.

Since that March 12, 2025, issue, HOV is up 31%. And since we recommended Hovnanian in Complete Investor, subscribers are sitting on a 50% gain. The stock trades around $134 this week.

We share those numbers not to take a victory lap. We are sharing them because the last time we owned Hovnanian, we made a mistake we have no intention of repeating. We added it to the Complete Investor recommendations list at $42.79, watched the transformation unfold almost exactly as we predicted, and then sold at the first whiff of higher interest rates. We left a fortune on the table – a 211% gain to be exact. This time, we are holding as the evidence has only strengthened our thesis.

Hovnanian used to be a “debt dog” – so buried in land and leverage that its earnings never reached shareholders, because they all went to pay the interest on its debt. Beginning around 2019, management copied the single best business model in homebuilding, the one NVR (NVR) pioneered in the late 1990s: stop buying and developing land with borrowed money, and instead buy options on finished lots you intend to build on in the near term. The land sits on someone else’s balance sheet until a homebuyer shows up. That one change turns a brutally cyclical, capital-hungry business into an asset-light, high-return machine. NVR proved it by sailing through the worst housing collapse in American history with minimal write-offs and 20%-plus returns on equity across the entire cycle.

Porter’s long-time subscribers will likely remember – his recommendation of NVR in the midst of the housing crisis has gone on to be a homerun – a 15.5% annualized return good for a 1,378% total return in 19 years.

And now Hovnanian is running the same playbook.

Hovnanian builds roughly 6,000 homes a year across 13 states, for about $3 billion in revenue. What changed – and what most investors still don’t understand – is how it finances them. You can watch the company run that exact NVR playbook in its own numbers. Optioned lots have climbed to roughly 86% of the pipeline, up from a third a decade ago, while owned lots have fallen from 67% of sales to 14%. As that land came off the balance sheet, debt and interest went with it – annual interest expense has been cut from $192 million in 2015 to roughly $45 million.

The result is that a debt-heavy business became a capital efficient one. Even back in 2021, the made-over Hovnanian threw off 21% gross margins, a 29% return on assets (“ROA”), and a 53% return on invested capital (“ROIC”) – elite figures for any business, let alone a homebuilder – while the shares still changed hands at under 4x earnings. And this is no fly-by-night operation: Hovnanian was founded in 1959 and has traded publicly since 1983, so it has plenty of Lindy DNA.

The real test, though, was the last 16 months. High mortgage rates and a cautious consumer defined the entire industry – Hovnanian’s fiscal Q2 revenue slipped 3% on 12% fewer deliveries, and the company posted a small diluted loss of $0.46 per share, half of the $0.88 loss Wall Street feared. But look at how the asset-light model carried it through a genuine downturn:

Write-offs stayed small. Inventory impairments and land-option write-offs over the trailing 12 months totaled just $46.6 million – against $254.5 million of adjusted operating earnings over the same stretch. This is the NVR lesson in miniature: when you don’t own the land, a soft market does not blow a hole in your equity.

The balance sheet got stronger. In late 2025, Hovnanian completed a $900 million unsecured refinancing, pushing its maturities out to 2031 and 2033. It ended April with $442 million in total liquidity – nearly double the top of its own $170 million to $245 million target range.

It kept earning real returns at the trough. Its trailing-12-month adjusted return on investment was 15.9%, which management believes is the highest among its nine midsized public homebuilding peers. Most builders post their worst numbers at the bottom of the cycle. This one stayed near the top of its class.

It bought back stock below book value. Last quarter, Hovnanian repurchased 90,507 shares – about 1.8% of its Class A stock – at an average of $104.60, against a book value of roughly $118 per share. That is management buying $1 of book for 89 cents.

Demand is turning. Total domestic contracts rose 2% year over year, adjusted gross margin ticked up to 14.3% from 13.4% the prior quarter, and management is guiding to 14% to 15% for the current quarter.

Here is how CEO Ara Hovnanian summed up the quarter in May:

Overall, our performance reflects the resilience of our operating model and our team’s ability to execute in an unsettled market.

There is also a free option attached. Hovnanian’s Middle East affiliate – recently rebranded HOV Global – just deepened its investment in Saudi Arabia, with roughly 2,400 homes delivered there since 2013 and about 3,000 more underway. We are paying nothing for it in our valuation, which is exactly how we like optionality.

Despite a transformed balance sheet, a superior business model, and a real runway of growth, Hovnanian still trades at less than 3x operating cash flows – versus NVR’s 14x. The market has decided one of these companies is world-class and the other is a leftover from the last cycle, even though they are running the identical playbook.

You can lead a horse to water, but you can’t make it drink. Porter led you to the water in the Daily Journal in March – in public, for free. The readers who drank – who took the official recommendation in Complete Investor – are sitting on a 50% gain.

Now we’ll let the Hovnanian position compound and stay out of its way – as long as it continues to deliver.

Tell us what you think of today’s Journal: porterstansberrydirect@gmail.com

Good investing,

Jared Simons
Miami Beach, Florida