Harbor Custom Development, Inc. (HCDI) in Gig Harbor, Wash., is involved in land acquisition, entitlements, development, construction of project infrastructure, single- and multi-family vertical construction, marketing, sales, and the management of various residential projects. It listed six Western Washington apartment projects totaling 734 units for a combined $278 million, with Kidder Mathews to benefit from the high demand for multi-family housing.

The company also expanded its geographical footprint into the Texas market with 208 single-family lots under various stages of development, located throughout the Austin MSA. 

However, the stock has declined 28.3% in price over the past year to close yesterday’s trading session at $2.43. In addition, it is currently trading 36.1% below its all-time high of $3.80, which it hit on May 3, 2022. So, HCDI’s near-term prospects look bleak.

Here is what could influence HCDI’s performance in the upcoming months:

Low Profitability

In terms of trailing-12-month CAPEX/Sales, HCDI’s 1.03% is 63.3% lower than the 2.81% industry average. And its 0.71% trailing-12-month asset turnover is 32.4% lower than the 1.05% industry average. Furthermore, the stock’s 30.31% trailing-12-month gross profit margin is 16.3% lower than the 36.23% industry average.

Stretched Valuation

In terms of trailing-12-month EV/S, HCDI’s 1.86x is 54.5% higher than the 1.20x industry average. And its 11.35x trailing-12-month EV/EBITDA is 23.9% higher than the 9.16x industry average. Moreover, the stock’s 12.49x trailing-12-month EV/EBIT is higher than the 12.29x industry average.

Unfavorable Analyst Estimates

Analysts expect HCDI’s EPS to decrease 95% for the quarter ending Sept. 30, 2022, and 87.5% in its fiscal year 2022. Also, its EPS is expected to remain negative in the current quarter, ending June 30, 2022.

POWR Ratings Reflect Bleak Prospects

HCDI has an overall D rating, which equates to Sell in our POWR Ratings system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. HCDI has a D grade for Quality, in sync with its lower-than-industry profitability ratios.

The stock has a C grade for Sentiment. This is justified because analysts expect its EPS to decline in the near term.

In addition, HCDI has a C grade for Value, in sync with its higher-than-industry valuation ratios. Click here to access HCDI’s growth, Momentum, and stability ratings.

HCDI is ranked #38 out of 45 stocks in the Real Estate Services industry. The industry is rated D.

Bottom Line

HCDI could keep losing in the near term due to concerns over an increasingly hawkish Fed and supply chain disruptions. Because the stock looks overvalued at the current price level, we think it is best to avoid it now.

How Does Harbor Custom (HCDI) Stack Up Against its Peers?

While HCDI has an overall POWR Rating of D, one might want to consider investing in the following Real Estate Services stocks with a B (Buy) rating: Marcus & Millichap, Inc. (MMI), The RMR Group Inc. (RMR), and Jones Lang LaSalle Incorporated (JLL).

HCDI shares were trading at $2.35 per share on Tuesday afternoon, down $0.08 (-3.29%). Year-to-date, HCDI has declined -10.65%, versus a -15.71% rise in the benchmark S&P 500 index during the same period.

About the Author: Nimesh Jaiswal

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...

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