In the IBD 50, top growth stock Skyline Champion is in focus amid strong demand for housing.
Skyline Champion is a factory-built housing builder. The company — founded in 1951 — operates 40 factories across western Canada and the U.S. producing mobile homes, trailers and other types of modular housing.
Skyline Champion has been on an impressive growth trajectory, with a three-year EPS growth rate of 42%.
In the company's latest quarterly earnings, reported on Feb. 2, strong results continued. EPS of $1.18 beat analyst expectations of 73 cents. Net sales also beat estimates, coming in at $534 million — a 41.6% year-over-year increase.
Strong demand for housing is fanning growth. While supply chain disruptions led to a 31.7% higher average selling price over a year prior, consumers were undeterred.
Skyline Champion increased the number of homes sold, and demand remains high. As of January, the company has an order backlog of $1.5 billion, compared with just $488 million at the end of 2020.
Growth Stock Enjoys Huge Housing Demand
This sky-high demand is expected to fuel further growth while production is poised to push higher especially as factory Covid-19 labor disruptions ease.
Analysts expect EPS of $1.53 in 2021 to more than double to $3.82 in 2022, then grow further to $4.20 in 2023. Even if economic conditions unexpectedly worsen, growth could potentially continue undeterred.
Skyline experiences the strongest demand in households where incomes are $60,000 or below. That market segment is primarily young singles, married couples, first-time homebuyers and homebuyers age 55 and older.
Strong fundamentals have led to heavy demand from institutional investors. Currently, mutual funds hold 70% of shares, according to MarketSmith. Analysts are also optimistic about company prospects. Of the seven analysts covering the stock in Bloomberg Intelligence, the average price target is 92.2, with two analysts targeting more than 110. Shares traded around 73 on Monday.
Skyline Champion's strong results have led to a top IBD EPS Rating of 99 and a Composite Rating of 98.
Shares are forming a double-bottom base with an 81.08 buy point, per MarketSmith pattern recognition. The relative strength line is nearing highs, a positive sign.
