Profile: The Ryland Group Inc. (RYL) is a residential construction company that focuses on home building for first-time, second-time, and move-up home buyers. The company, additionally, operates its only mortgage financing arm. The company offers detached, town homes, condominiums, and some mid-rise buildings. Ryland was founded in Calabasas, California in 1967.
Thesis
We all know the story on the residential construction sector. It has been one of the toughest industries in the economic times. A lack of new home demand, which is brought on by the high levels of unemployment and economic uncertainty, has plagued the entire sector. Recent rises in home sales in late 2009 and early 2010 were mostly fueled by tax credits. Now that those have disappeared natural demand has reappeared and sales have dropped off again for homebuilders. Real demand for homes may not appear again until 2013 – 2014, and until then, these companies will continue to struggle. Those companies that can do the best job of keeping down debt, remaining financially healthy, and liquidating inventory will be able to remain above water and play the waiting game for demand to return.
One company that has maintained one of the cleanest balance sheets is Ryland Group Inc. (RYL). The company operates in the Southeast region and West region. They operate in the mid-level home with an average selling price in the mid-$200,000 levels. They appeal to first-time, second-time, and move-up homebuyers. The company has been able to maintain a very financially healthy balance sheet over the past three years, keeping a current ratio above 4 and improving it over 6.5 in the latest quarter. The company is doing a great job of covering their liabilities and figuring out great ways to keep their head afloat during these tough economic times. Their current ratio is far better than competitors Pulte Homes, D.R. Horton, Lennar, and KB Homes – with the top competitors ratio at three.
The current outlook does not look promising for homebuilders. Since the expiration of the tax credit for new homebuyers, the housing market has significantly collapsed. The administration, in July, extended new credits, but the new homebuyer pool has dried up to a certain level. What the industry truly needs is new demand, which comes from movement in jobs and a fluid job market. That is anything but the case. Unemployment may not significantly drop until 2012, and it may be more time till these companies…
