In a market where undervalued opportunities are increasingly hard to find, one industry stands out.

Homebuilders, largely dismissed amid higher mortgage rates, are trading at valuations that imply a far worse future than the fundamentals suggest.

Not all stocks offer attractive risk/reward just because their industry looks cheap. Investors need to do their diligence on profitability and valuation to find the real winners.

We’ve done the diligence and narrowed in on this week’s Long Idea.

The company is taking market share, expanding its operations across the country, and returning capital through share repurchases. Better yet, the stock looks significantly undervalued at its current price.

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This stock offers favorable Risk/Reward based on:

  • persistent undersupply of housing in the U.S.,
  • leading market share in its regions,
  • ample supply of controlled lots to build on,
  • long-term revenue and profit growth, and
  • cheap stock valuation.

We Need More Housing

It is no secret that the U.S. needs more houses. While experts debate the exact amount of the shortage, the projected numbers are staggering. For instance, different sources estimate the housing shortage is as high as:

  • 4.7 million homes – Zillow July 2025
  • 3-4 million homes – Goldman Sachs October 2025
  • 4 million homes – Realtor.com December 2025

In fact, JPMorgan Chase, in an October 2025 report, estimates that the current housing shortage could take, conservatively, 10 years to resolve. See Figure 1.

Figure 1: Cumulative Housing Shortage and Trendline

Sources: JPMorgan Chase

Taking Market Share

This company is in strong position even as affordability issues persist. The median sales price of new houses sold in the U.S. sits at ~$413.5k in August 2025, up from ~$332k in February 2020, just before the COVID-19 pandemic sent home prices soaring.

Entry-level homes, which are a large portion of this company’s business, present a more affordable option for potential homebuyers.

In 3Q25, 52% of the company’s sales came from its most affordable line of homes with an average sales price 6% below the median sales price across the U.S.

By offering a mix of more affordable homes, as well as “move-up” homes, the company has successfully captured more of the overall homebuilder market. The company’s share of U.S. new one family homes, based on homes delivered, increased from 0.8% in 2017 to 1.3% in the TTM. See Figure 2.

Figure 2: Share of U.S. New One Family Homes Sold: 2017 – TTM

Sources: New Constructs, LLC, company filings, and FRED

Growing Sales and Active Communities

With ample lots under control, the company can focus more on expanding its homes delivered, as noted above, and the number of communities in which it operates across the United States.

The company has increased its homes delivered 8% compounded annually since 2017. Selling more houses means growing market share. Over the same time, the company’s active communities also increased, per Figure 3.

Figure 3: Homes Delivered and Active Communities: 2017 – TTM ended 3Q25

Sources: New Constructs, LLC and company filings

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