What’s Happening With Lennar Stock?

Lennar (NYSE: LEN), one of the largest homebuilders in the U.S., is down 13% year-to-date, underperforming the S&P 500’s 6% gain. At face value, the stock looks like a bargain, trading at just 0.8x sales and 9.2x earnings, far below the index averages. But those discounts come with baggage. Persistently high mortgage rates, softening housing demand, and aggressive price cuts have eroded profitability and shaken investor confidence. Despite beating revenue expectations in Q2, Lennar’s margins are under pressure, raising a key question: Is this stock simply cheap, or cheap for a reason? That said, if you seek upside with lower volatility than individual stocks, the Trefis High Quality portfolio presents an alternative, having outperformed the S&P 500 and generated returns exceeding 91% since its inception.

A closer look at Lennar’s fundamentals reveals underlying weaknesses. The company’s price-to-free cash flow (P/FCF) ratio stands at a high 107.9, signaling weak cash conversion and raising concerns about the sustainability of its current valuation. While the stock may look cheap, the premium investors pay isn’t in the valuation multiple; it’s in the volatility and margin compression that come with housing market exposure.

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Q2 Recap: Sales Beat, Margins Shrink

Lennar reported mixed Q2 2025 results (November fiscal year). Revenue came in at approximately $8.4 billion, beating estimates on the back of a 6% increase in new home orders and a 2% rise in deliveries. However, net income dropped nearly 50% year-over-year to $477 million, as gross margins contracted to 17.8% due to aggressive discounting and mortgage incentives. The average selling price fell 9% to $389,000, highlighting continued affordability challenges. While the company maintained strong liquidity and repurchased $517 million in stock, EPS of $1.90 missed expectations, and elevated SG&A expenses further pressured profitability. Despite market share gains and a shift toward an asset-light model, investor sentiment remained cautious in light of narrowing margins and softening demand.

Margins Under Pressure Despite Scale

Lennar’s recent financial performance reflects mounting pressure on both growth and profitability. While Lennar’s Revenues grew at a 5.9% average annual rate over the past three years, slightly ahead of the S&P 500’s 5.5%, it declined 1.1% over the last 12 months. In the latest quarter, revenue dropped 4.4% year-over-year to $8.4 billion, while the S&P 500 saw a 4.8% gain. Profitability metrics paint a more concerning picture: Lennar’s Operating Income of $4.1 billion translates to a modest 11.5% margin (over the last four quarters), while Lennar’s Operating Cash Flow (OCF) of just $410 million yields a weak 1.2% margin, far below the S&P’s 14.9%. Lennar’s Net Income of $3.3 billion reflects a 9.2% margin, also trailing the index’s 11.6%. Overall, the company’s margins and cash generation remain under pressure despite its scale.

How Does Lennar Hold Up in a Downturn?

Lennar has historically underperformed the broader market during major downturns, experiencing steeper drawdowns than the S&P 500 in each crisis. During the 2022 inflation shock, the stock plunged 44.8%, compared to the S&P 500’s 25.4% decline. The COVID-19 crash in 2020 saw Lennar fall 58.8%, nearly double the index’s 33.9% drop. Most dramatically, during the 2008 financial crisis, the stock collapsed by 93.5%, while the S&P 500 declined 56.8%. Although Lennar has eventually rebounded following each downturn, it has consistently lagged in the early stages of recovery, underscoring its vulnerability in volatile market conditions. Our dashboard How Low Can Stocks Go During A Market Crash captures how key stocks fared during and after the last six market crashes.

A Smarter Way to Play the Market?

While it doesn’t look like there is currently much upside to LEN stock, the Trefis Reinforced Value (RV) Portfolio has outperformed its all-cap stocks benchmark (combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to produce strong returns for investors. Why is that? The quarterly rebalanced mix of large-, mid- and small-cap RV Portfolio stocks provided a responsive way to make the most of upbeat market conditions while limiting losses when markets head south, as detailed in RV Portfolio performance metrics