Volatility is not the same as risk, though investors like to see less of both when pursuing a growth stock. But the two are not the same, as Oracle of Omaha Warren Buffett has pointed out.
Volatility is a measure of the fluctuation of a stock's price. The bigger the swings, the more volatile a stock is. But risk is a measure of the probability that investors will lose money on a stock. This can happen if the stock's valuation goes down.
Investors look at both when buying a stock.
So how much volatility and risk does IBD 50 stock Tri Pointe Homes pose?
Let us look at the chart first and see if the stock is actionable.
The homebuilder stock is nearing a buy point of 25.80 in a flat base. Shares broke out of a cup with handle in February before carving the new flat base. The base-on-base structure is a bullish sign, showing the stock holding higher levels that allow new bases to form.
The technical ratings come next.
The stock has a relative strength line that is near a 52-week high. Stellar technical ratings underpin the growth stock's move up as well. The near-perfect Composite Rating of 98 and Relative Strength Rating of 95 are shows of strength, while the 97 EPS Rating signals continuous earnings growth over the past eight quarters.
Fundamental Strength In Growth Stock
In the fourth quarter, sales at the homebuilder grew 25% year over year to $1.5 billion. Earnings also scored, rising 49% to $1.98 per share. At the same time, Tri Pointe started a $250 million buyback program that runs through December.
Analysts polled by FactSet expect sales to taper off to $593 million in the first quarter, while earnings fall to 43 cents per share.
However, CEO Doug Bauer made optimistic comments in a recent CNBC interview, seeing "green chutes" in new builds cropping up due to low supply of resale homes. This increased activity suggests that customers have settled into a higher-interest-rate mentality.
Tri Pointe Homes ranks third in the Building-Residential/Commercial group, which holds second place among IBD's 197 industry groups.
This Southern California homebuilder of premium single-family attached and detached homes came public in 2013 and has grown its footprint to 10 states.
According to MarketSmith data, the growth stock's 1.27 beta tends to be on the volatile side. Nonetheless, FactSet analysts see the stock price vs. cash flow improving to 29.2 for the current quarter, compared with 34.8 in the fourth quarter. That indicates Tri Pointe is generating greater cash flow compared with the stock price.
Mutual funds own 73% of the stock.
Exchange traded funds hold the stock as well, with the Invesco Dynamic Building & Construction ETF and the iShares U.S. Home Construction ETF big shareholders.
The growth stock has rallied 34% so far this year, but Tri Pointe Home's chart continues to look good.
And the stock ratings and valuation have the makings of a market leader, even in a higher-interest-rate climate.
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