Buy Or Fear Lennar Stock?
Lennar Corporation (NYSE: LEN), one of the largest U.S. homebuilders, has seen its stock slump about 25% over the past year as affordability pressures, high mortgage rates, and weakening margins weigh on investor sentiment. The latest quarterly earnings disappointed, fueling fresh concerns about the near-term housing outlook. Now the question for investors is whether this decline reflects short-term turbulence in the housing cycle, or deeper structural issues — and whether Lennar is a buy after the selloff. But if you seek an upside with less volatility than holding an individual stock, consider the High Quality Portfolio. It has comfortably outperformed its benchmark—a combination of the S&P 500, Russell, and S&P MidCap indexes—and has achieved returns exceeding 91% since its inception. As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics. Separately, see – The Fed, The Dollar And The Next Gold Crash?
So What Went Wrong?
For Q3 FY2025, Lennar reported revenue of $8.81 billion, down about 6% year-over-year, falling short of analyst expectations. Net earnings plunged nearly 46% to $2.29 per diluted share, compared to $4.26 a year earlier. Adjusted EPS came in closer to $2.00, underscoring the pressure on profitability.
The core issue is housing affordability. The average selling price of Lennar homes fell to roughly $383,000, down from over $400,000 last year, as the company leaned heavily on incentives such as mortgage-rate buydowns to sustain buyer demand. While new orders rose about 12% to 23,000 homes, margins paid the price. Gross margin on home sales dropped to 17.5%, down from over 22% last year.
On top of that, deliveries of 21,584 homes came in below expectations of around 22,400. Backlog stood at $6.6 billion, reflecting steady but weaker visibility. The combination of lower ASPs, weaker margins, and higher incentives created a disappointing quarter that reinforced concerns about the broader housing slowdown.
One of the Biggest Overhangs
Mortgage rates remain the elephant in the room. With 30-year fixed rates still elevated, many first-time and move-up buyers are priced out, forcing Lennar and peers to cut prices or offer heavy incentives. This dynamic erodes profitability just as costs for land, labor, and materials remain stubbornly high.
At the same time, the housing market is fragmented: while demand for entry-level homes remains resilient, luxury and move-up buyers are showing more caution. This uneven recovery leaves Lennar caught between volume growth and profitability pressures.
Is The Stock A Buy?
Coming to the numbers, Lennar doesn’t look expensive on paper. The stock trades at a P/E ratio near 11x and a price-to-sales ratio of about 1x — far lower than high-growth tech names or even the broader market average. Operating margins sit in the high teens, though recent declines show the vulnerability of the model. Free cash flow has remained positive, supported by a relatively strong balance sheet with manageable leverage.
That said, fundamentals are facing pressure. Revenues have declined this year, and gross margins are meaningfully below their historical averages. The reliance on incentives to drive sales raises concerns about sustainability if mortgage rates stay elevated well into 2026. Also see – LEN Dip Buy Analysis.
History also suggests that this is not a resilient stock. Lennar has bounced back much slower than the S&P 500 in every major downturn over the past two decades. At today’s levels, the valuation seems fairly priced, and the recent selloff does not seem like a buying opportunity.
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