Century Communities, Inc.

Moat: 2/5

Understandability: 3/5

Balance Sheet Health: 4/5

Century Communities, Inc. is a homebuilder involved in developing, constructing, and selling single-family homes across multiple states.

Investor Relations Previous Earnings Calls


The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview and Competitive Landscape

Century Communities, Inc. (CCS) operates as a homebuilder, focusing primarily on the development, construction, and sale of single-family homes. They also engage in land development, acquisitions, and a financial services business, providing mortgage and title services.

The company’s geographic footprint spans multiple U.S. states, including Texas, Colorado, Nevada, Utah, and California, among others, in the western, central, and southeast regions. This geographic diversity provides some risk mitigation, as regional downturns may not equally impact all of their markets.

  • Home Sales: This is the primary source of revenue for CCS, consisting of the sales of single-family homes.
  • Financial Services: This segment includes revenue from mortgage and title services provided to homebuyers.
  • Land Sales: While land development is a core activity, profits from these sales tend to be volatile and are secondary to their home-sales business.

The homebuilding industry is highly cyclical, experiencing booms during economic expansions and downturns during recessions. The recent years have seen a mix of strong demand from low mortgage rates and a low supply of homes, causing prices to spike, followed by increased rates which slowed demand. The recent shift in interest rates and related market uncertainty has introduced volatility in buyer sentiment, potentially impacting home sales volumes and pricing power.

Revenue growth is primarily driven by the number of homes sold and the average sale price, so factors like mortgage rates and housing affordability play a direct role in revenue.

Margins and Cost Structure

Homebuilding typically operates with relatively low profit margins due to the high cost of land, materials, labor, and construction. However, home builders often manage these through efficient supply chain management, controlling operating expenses, and adjusting home pricing.

Cost fluctuations for building materials can lead to volatile margins, as these expenses are typically a high percentage of overall costs, so the management of the supply chain is paramount for maintaining margins.

One key metric for tracking financial health of a home builder is the amount of cash held at hand, in order to fulfill obligations and to capitalize on future development and land acquisition opportunities.

What Makes Century Communities Different

  • Multi-Brand Strategy: Century Communities operates under several brands, catering to different consumer preferences and price points. This can enable the company to capture a wider customer base, versus a purely single-brand builder.
  • Geographic Diversification: Operating in diverse geographical locations mitigates risk by providing more balance than companies focused on one location, allowing them to grow and adapt to local market cycles.
  • Vertical Integration: By offering in-house mortgage and title services, CCS streamlines the home buying process for customers and provides them with additional revenue streams.

Moat Analysis

The concept of a moat, in this context, is the ability for a company to build and maintain a durable competitive advantage. A strong moat leads to sustainable revenues and margins over time.

Moat Rating: 2 / 5

  • Brand: While Century Communities has multiple brands, it doesn’t have a dominant brand like a Nike or Apple that offers a strong price premium. Its brands have a local or regional presence, but no national brand recognition that can confer a sustainable competitive advantage.
  • Switching Costs: Buyers of new homes are unlikely to be highly influenced by “switching costs.” Homebuyers are usually making a once in a lifetime purchase based on emotional and practical reasons, not because of any lock-in with an individual builder, like in other industries. So switching costs don’t constitute a solid moat here.
  • Network Effects: There are no significant network effects in the homebuilding industry. Customer purchasing decision is largely made independent of others and the value of a home has nothing to do with if more people are in the same neighbourhood.
  • Cost Advantage: Century Communities strives to be cost efficient but there’s nothing specific that gives them a sustainable cost advantage that cannot be replicated by others, like location advantages.
  • Intangible Assets: The company’s main assets are tangible assets such as inventory and land.

Therefore, Century Communities has no clear identifiable moat. This is a highly competitive industry that is easily influenced by economic conditions such as rising or declining rates, fluctuating commodity prices, and even local government policy.

Legitimate Risks

  • Economic Cycles: The housing market is notoriously sensitive to economic cycles and fluctuations in interest rates. Rising interest rates increase the cost of mortgages, thus impacting buyer demand, and a slowdown in the economy could result in decreased home sales. This presents a considerable risk to the company’s revenues and profits.
  • Rising Material and Labor Costs: Increased costs for building materials and labor can compress profit margins. The company will have to manage its supply chain and labor costs closely.
  • Competition: The homebuilding industry is highly competitive, with both national and regional players. Pricing pressure from competitors can affect sales and margins.
  • Changes in Government Policy: Regulatory changes related to zoning, building codes, permits, or government incentives can significantly impact the development and building process, affecting both supply and demand in their markets.

Business Resilience

The business’ resilience to these risks is questionable. While geographic diversification mitigates some regional risks, the overall exposure to economic cycles remains high, and a sudden economic downturn would adversely affect the company. However, they will likely benefit during positive economic cycles.

Despite facing those risks, companies with strong financials and strong brand value will likely fair better than those without those qualities.

Financial Analysis

The data for financial analysis is mainly derived from the September 30th, 2022, earnings call, as well as more recent reports.

Revenue Growth and Profitability

  • Recent Performance: Century Communities’ has displayed volatile revenue growth and profitability over recent years, showing positive performance during the low rate period from 2020-2022, which has now slowed down in 2023.
  • Future Forecast: The volatility will likely continue as they try to battle headwinds and operate through different markets.

Balance Sheet

  • Assets: A large portion of assets are held in inventory of lots and homes, which will fluctuate in value depending on market conditions.
  • Liabilities: The company uses debt to fund a portion of operations. This leverage has been a good move during low interest rates, but may pose a problem with increasing rates.
  • Equity: They have a reasonable amount of shareholder’s equity.

Overall, the company’s balance sheet appears healthy, showing adequate capital to absorb economic shocks.

Balance Sheet Health Rating: 4 / 5

The company uses debt to finance growth and will be affected by changes in the interest rate environment. However, their assets and revenue growth are impressive.

Understandability Rating: 3 / 5

Homebuilding is a relatively easy to understand industry that is based on selling homes, however, for most people it is important to understand some of the metrics and risks involved when buying these companies.

  • The company’s business model is easy to grasp, as it develops land and builds homes.
  • However, the interplay of different economic factors like interest rates, commodity prices and regulatory changes makes them slightly complex to understand.
  • Additionally, the financial statements, especially for non-financial professionals, may need some understanding to see past reported values into their underlying economic impact.

Given these factors, Century Communities receives a 3 out of 5 in understandability.