Legacy Housing Corporation Is A Good Old Fashioned Business

We like old-fashioned businesses. This one is in low-cost, manufactured housing. If you know what a "double-wide" is then you know what types of homes we are talking about here.

Any investor should respect the numbers Legacy (LEGH) is generating - $169M LTM revenues up 31%, 24% EBITDA margins and pre-tax ROE of 26%. These levels of growth and profitability have been consistent over the last 10 years.

Considering Low Cost Housing

Housing is expensive, especially stick-built single family homes. For many Americans, a manufactured home is an excellent, low-cost solution. Demand for lower-cost housing has been very durable and it's not just from low earners. As rents increase in greater metropolitan areas young adults are realizing that they may be better off owning, if they can find a "starter" property that they can afford. Often that won't be a detached stick-built structure.

Other demand drivers are from community builders (described below) and as vacation homes requiring less investment and maintenance that a typical one family home.

Unit volume has been recovering since the US economic collapse in 2008 but still has room to expand further before nearing prior levels.

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Older adults are also opting for these lower cost options. Especially when they are set in warm and desirable locations. One REIT company, Sun Communities (NYSE: SUI) has done an excellent job building communities based on this style of housing. Other examples of these specialty REITs are Equity Lifestyle (ELS) and UMH Properties (UMH). Here's a good overview of this modular home REIT sector for more background.

It's debatable how the manufactured home sector will perform as interest rates and the economy change. Some believe that the sector is countercyclical but valuations are fairly high and while business may hold up during more challenging times, valuations may still decline.

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Disclosure: We do not have any vested interest in the shares of this stock at the time of writing and publication. We may however take a position post publication and are not under any obligation to ...

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