- Buys
- 0 of 4
- Three are needed, so it stays out of the basket.
- Home sale gross margin, third quarter
- 24.8%
- Lennar reported 15.8% after incentives of about 12%.
- Buybacks and dividends against free cash flow, nine months
- $1.15B vs $559M
- Cash fell $611M to cover the gap.
- Free cash flow the price requires in year three
- $1.36B to $1.53B
- Our arithmetic. No seat's weighted case reaches it.
Quality, decade-long holdingA well-run cyclical, priced for mid-cycle earnings as the cycle turns down.
Deep value, balance sheet first8 times normalized earnings is $17.76B, below the $21.16B market cap.
Macro and reflexivityThe right builder for a turn in long rates that has not come.
GrowthIts model hit the time limit, so it cast no vote.
Session of October 22, 2026. Three seats voted; Investor D's model ran past its time limit. The third-quarter figures were added to the fact sheet by hand from the results release filed that morning, because the filed data behind the sheet ended on June 30. This is the committee's first review of PulteGroup.
Bottom line
PulteGroup's quarter, reported on October 22, 2026, shows a margin that holds and cash that does not. Home sale gross margin was 24.8%. Net new orders fell 6% while the average community count rose 7%. Over nine months, $1.15B went to buybacks and dividends against $559M of free cash flow (8-K, Exhibit 99.1, October 22, 2026).
At $21.16B, the market cap needs trailing free cash flow of $1.30B to grow about 1.5% to 5.6% a year. All three answering seats model less. They split on whether a land book up $1.17B in nine months is an option on lower rates or the place a downturn turns permanent.
We think the inventory line decides it before the income statement does. The first read is the quarterly report due by November 9, 2026, with the impairment and land detail the release left out.
The business in 60 seconds
PulteGroup builds new single-family homes in more than 45 US markets under Centex, Pulte Homes, Del Webb, DiVosta and John Wieland Homes and Neighborhoods. Homebuilding was 98% of second-quarter revenue (10-Q, filed July 22, 2026). Its mortgage arm financed 85% of third-quarter closings and earned $46M of the $625M pre-tax total.
The company says more than 60% of its business is now move-up and active-adult buyers, which it calls more profitable. The average home closed at $561,000.
Almost all the capital sits in land and homes: $14.09B of $18.48B of total assets at September 30, against nine-month capex of $78M. We could not source the proxy's large-holder table in this review; search results, unverified, show no controlling holder.
| Fiscal year | Revenue | Net margin | Free cash flow | Diluted shares |
|---|---|---|---|---|
| 2021 | $13.7B | 13.9% | $931M | 259.9M |
| 2022 | $16.0B | 16.3% | $556M | 236.2M |
| 2023 | $16.1B | 16.1% | $2.1B | 221.2M |
| 2024 | $17.9B | 17.3% | $1.6B | 209.8M |
| 2025 | $17.3B | 12.8% | $1.7B | 199.5M |
10-K fiscal year rows, SEC EDGAR. PulteGroup does not tag operating income, so net margin stands in.
What changed
- Earnings fell 19%. Third-quarter net income was $476M against $586M, on revenue of $3.97B against $4.40B. Closings fell 9% to 6,876 homes (8-K, October 22, 2026).
- Impairments arrived. The margin includes $26M of land impairments, about 70 basis points. SG&A rose to 10.3% of home sale revenue from 9.4%.
- Backlog grew. 10,298 homes worth $6.4B, against 9,888 homes and $6.2B a year earlier.
- Net cash became net debt. Notes payable rose to $1.81B and cash fell to $1.37B. Net debt-to-capital moved from -3.0% at December 31, 2025, to 3.0%. The release gives no numeric outlook.
- The competitors. Lennar's quarter to August 31 brought orders down 9%, a 15.8% gross margin with about 12% in incentives, and a lower fiscal 2026 delivery range of 80,000 to 81,000 homes (8-K, September 16, 2026). Toll Brothers grew net signed contracts 5%, but its adjusted gross margin fell to 25.6% from 27.5% (8-K, August 18, 2026).
The bull case on PulteGroup
- The mix defends price. 24.8% after impairments, against Lennar's 15.8% with heavy incentives. The average closing price fell only 1%.
- The balance sheet cannot break. Debt-to-capital is 12.1%, and net debt is $401M against $13.10B of equity.
- The share count keeps shrinking. Diluted shares fell 23.2% from fiscal 2021 to 2025, and another 8.4 million, about 4%, went this year.
- The forward book is larger. Backlog value is up 3% while builder sentiment sits near a fourteen-and-a-half-year low (Reuters headline, October 19, 2026).
Expectations have given up. The driver has not.
Investor C, Watch, on sentiment against rates
Explicitly: the bad path is slow and survivable, the good path is fast and violent, and the option pays nothing while the long end rises.
Investor C, on the payoff
The bear case on PulteGroup
- Each community sells less. Orders down 6% on 7% more communities is roughly 12% fewer orders per community.
- Inventory is eating the cash. $1.15B went into inventory over nine months, against $636M a year earlier. Operating cash flow fell to $637M from $1.10B.
- Payouts outran the business. $1.0B of buybacks plus $151M of dividends, funded by lower cash and new notes, at the top of a land cycle.
- Earnings are in their second year of decline. Net income went from $3.1B in fiscal 2024 to $2.2B in 2025 and $1.80B over the twelve months to September.
- Rates point the wrong way. The 10-year Treasury yield was 5.12% on October 20, 2026, up 11 basis points in 30 days (FRED).
Opinion: low leverage protects the business more directly than it protects shareholders from overpaying.
Investor B, Avoid
Land is being added faster than it is selling, and that is where cyclical risk turns into permanent impairment.
Investor A, its weakest link
Where the committee splits
No seat voted Buy, and each stopped for its own reason.
Is the bigger land book an option on lower rates, or the risk itself?
| Position | Seats | The figure it rests on |
|---|---|---|
| Torque for the turn | C | Community count up 7%; backlog value up 3% |
| Where loss becomes permanent | A, B | Inventory $14.09B against $12.93B; $26M impaired |
What settles it. Land impairments in the September quarterly report and the fiscal 2026 10-K. Investor C drew its line at $75M in one quarter, Investor A at $100M.
From the chair, to Investor C. If the long end has not turned when the 2027 land budget is set, is a 7% larger community count still an option, or a carrying cost? The row is house and land inventory.
Which earnings should the multiple sit on?
| Position | Seats | The figure it rests on |
|---|---|---|
| Normalize, then discount hard | B | Fiscal 2025 net income $2.22B at 8 times |
| Mid-cycle price, cycle turning | A | 11.8 times trailing earnings that are falling |
| Cheap for quality, base still falling | C | ROE about 13.7% on trailing earnings |
What settles it. Fiscal 2026 net income in the 10-K due by March 1, 2027.
From the chair, to Investor B. Your normalization uses $2.22B; trailing net income to September is $1.80B. If fiscal 2026 lands there, does the value move to your own $14.40B sensitivity, and does 3.0% net debt-to-capital earn any credit in the multiple?
From the chair, to Investor A. You count the shrinking share count as the per-share engine and flag payouts above free cash flow. Which figure in the 10-K tells you the buyback has become a cost: repurchases against free cash flow, or net debt-to-capital?
| Investor | Verdict | What breaks its thesis |
|---|---|---|
| A | Watch 6 | Fourth-quarter gross margin below 23.0%; impairments above $100M in a quarter; net debt-to-capital above 15%. Avoid if rates keep rising, orders fall over 10% and impairments climb |
| B | Avoid 8 | Fiscal 2027 net income below $1.80B; net debt-to-capital above 15%. The Avoid breaks on net income of $3.0B or more in both 2027 and 2028 |
| C | Watch 6 | 10-year 50 basis points above 5.12% for 20 trading days, then Avoid; fourth-quarter margin below 22%; impairments above $75M in a quarter; high yield spread through 4.5%. A turn in long rates with stable spreads moves it to Buy |
| D | No response | No vote |
Valuation
What the price requires. This is our arithmetic, which the seats did not see: the 10-year yield plus 4.5 points, 9.62%, and 3% growth after year ten. The sheet's base was $1.51B of free cash flow to June 30. We use $1.30B to September 30, which carries this year's inventory build. At 9.62% the market cap needs 3.6% growth a year and $1.45B in year three; at 8.62%, 1.5% and $1.36B; at 10.62%, 5.6% and $1.53B. On the June base the band is $1.49B to $1.68B. Free cash flow is 6.1% of market cap and 6.0% of enterprise value, net debt counted, against a 5.12% 10-year yield.
Hatched bars are what the market cap requires at each rate. Seat bars weight each seat's scenarios by its own probabilities. Red is below the lowest hurdle.
What each seat expects.
| Investor | Bear | Base | Bull | Weighted, year 3 | Against the price |
|---|---|---|---|---|---|
| A | 30%, $0.6B to $1.0B | 50%, $1.2B to $1.6B | 20%, $1.7B to $2.1B | $1.32B | below the band |
| B | 35%, $0.8B | 45%, $1.3B | 20%, $2.0B | $1.27B | below the band |
| C | 30%, $0.5B | 50%, $1.0B to $1.3B | 20%, $2.0B or better | $1.13B | below the band |
| D | no response |
The weighted column takes each range at its midpoint, and Investor C's bull case at $2.0B.
No seat reaches the band, and there is no guidance to test them against. Investor A comes closest: its base range straddles the band, and 30% on a bear case near the fiscal 2022 cash low pulls it under. Investor C has the lowest figure and still rates Watch, because its verdict turns on rates rather than this year's cash: "A turn in DGS10 momentum with HY spreads stable moves my verdict to Buy."
What each seat would pay.
| Investor | Entry discipline |
|---|---|
| A | 1.1 to 1.2 times book; normalized free cash flow yield above 9% |
| B | 6 times defensible normalized earnings or less |
| C | Free cash flow yield of 8% or better, or under about 1.3 times book, with the 10-year flat or falling |
Comparables
| Company | Market cap | Growth, last FY | P/E | Price / FCF | FCF yield |
|---|---|---|---|---|---|
| PulteGroup (PHM) | $21.2B | -3.5% | 11.1x | 14.0x | 7.2% |
| D.R. Horton (DHI) | $38.9B | -6.9% | 12.7x | 12.1x | 8.2% |
| Lennar (LEN) | $18.5B | -3.5% | 14.1x | 22.8x | 4.4% |
| Toll Brothers (TOL) | $12.4B | 1.1% | 10.4x | 11.4x | 8.8% |
| NVR (NVR) | $15.7B | -1.9% | 13.8x | 15.0x | 6.7% |
| KB Home (KBH) | $2.6B | -10.0% | 11.5x | 91.2x | 1.1% |
Company filings and the Yahoo Finance price, computed alike for every row on trailing figures to each latest 10-Q. PulteGroup's row ends June 30; on September figures it is 11.8 times earnings and a 6.1% yield.
Toll, the builder with the most similar buyer, is cheaper on earnings and cash. NVR is the contrast for the land question: it controls lots through options, so a downturn costs it deposits rather than a $14B inventory.
Key risks
Our ranking, worst first. Raised by shows where each risk surfaced.
| Risk | Why it matters | Raised by | First signal |
|---|---|---|---|
| High. Land written down in a long downturn | Inventory is 108% of equity | Analyst; Investor A; Investor C | Impairments above $75M in a quarter |
| High. Incentives reach the move-up buyer | Margin is the case for paying 11.8 times | Analyst; Investor C | Fourth-quarter gross margin below 23% |
| High. Long rates keep rising | The buyer's payment keys off the long end | Investor C; Investor B | 10-year 50 basis points above 5.12%, sustained |
| Medium. Payouts above free cash flow | Moved the company to net debt as demand weakened | Analyst; Investor A; Investor B; desk arithmetic | Net debt-to-capital above 15% |
| Medium. Tariffs and trade labor | Materials from Canada and Mexico, and immigration enforcement, raise costs | 10-K Item 1A; Analyst | Rising direct cost per home |
Refinancing risk is low on the filings, at 12.1% debt-to-capital. The value investing forum we read has no PulteGroup thread.
What to watch
| Date | Event | What it decides |
|---|---|---|
| By November 9, 2026 | 10-Q, quarter to September 30 (SEC deadline) | Impairments, land commitments, debt maturities |
| By March 1, 2027 | 10-K for fiscal 2026 (SEC deadline) | Fourth-quarter margin and orders, full-year net income, leverage |
| Ongoing | 10-year Treasury yield, FRED | Whether Investor C's turn has begun |
Our St. Joe review put another land-heavy business before the same seats four days earlier.
Owning it onchain
Two tokenized versions exist. The Backpack token is not investable: it lacks Jupiter verification. We have not judged the xStocks token: our only quote came before regular US trading opened on October 22, 2026, when market makers quote thinly.
Data
| Item | Figure | Source |
|---|---|---|
| Price | $112.89, October 21, 2026 close | Yahoo Finance |
| Shares outstanding | 187,452,540 at July 15, 2026 | 10-Q cover, SEC EDGAR |
| Market cap | $21.16B | Price times shares |
| Free cash flow, twelve months to September 30, 2026 | $1.30B | Fiscal 2025 10-K plus nine-month lines, October 22, 2026 release |
| Net income, same twelve months | $1.80B | Same basis, our arithmetic |
| Enterprise value | $21.56B | Market cap plus notes payable less all cash, September 30, 2026 |
Method. Four investors with different philosophies, each on a different AI model, read one identical fact sheet and voted independently. A name needs three Buys to enter a basket. How the committee works.
Correction. This article first said the xStocks token was not investable on a 2.13% round-trip cost. That quote was taken before regular US trading opened, when market makers quote thinly. We now judge that cost only during regular US market hours, and we have removed the figure and the verdict.
As of October 22, 2026, BagsCapital manages no outside capital and holds no position in PulteGroup. Nothing here is investment advice.