Critical Review: Gafisa SA (GFA) vs. Forestar Group (NYSE:FOR)

Gafisa SA (NYSE: GFA) and Forestar Group (NYSE:FOR) are both small-cap construction companies, but which is the better investment? We will compare the two businesses based on the strength of their dividends, profitability, valuation, analyst recommendations, earnings, risk and institutional ownership.

Profitability

This table compares Gafisa SA and Forestar Group’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Gafisa SA -84.96% -17.04% -7.10%
Forestar Group 46.94% 8.75% 6.66%

Analyst Ratings

This is a summary of recent ratings for Gafisa SA and Forestar Group, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Gafisa SA 1 0 0 0 1.00
Forestar Group 0 0 0 0 N/A

Volatility and Risk

Gafisa SA has a beta of 2.02, meaning that its stock price is 102% more volatile than the S&P 500. Comparatively, Forestar Group has a beta of 1.95, meaning that its stock price is 95% more volatile than the S&P 500.

Valuation and Earnings

This table compares Gafisa SA and Forestar Group’s top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Gafisa SA $281.75 million 0.37 -$67.03 million ($25.65) -0.29
Forestar Group $162.02 million 4.43 -$28.00 million $2.08 8.22

Forestar Group has higher revenue, but lower earnings than Gafisa SA. Gafisa SA is trading at a lower price-to-earnings ratio than Forestar Group, indicating that it is currently the more affordable of the two stocks.

Institutional and Insider Ownership

5.0% of Gafisa SA shares are held by institutional investors. Comparatively, 84.2% of Forestar Group shares are held by institutional investors. 3.1% of Forestar Group shares are held by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock is poised for long-term growth.

Summary

Forestar Group beats Gafisa SA on 8 of the 10 factors compared between the two stocks.

Gafisa SA Company Profile

Gafisa S.A. is a diversified national homebuilder. The Company’s segments are Gafisa (for ventures targeted at high and medium income) and Tenda (for ventures targeted at low income). The Company’s brands include Tenda, which serves the affordable entry-level housing segments, Gafisa, which offers a range of residential options to the mid to higher income segments and Alphaville (equity method investment), which focuses on the identification, development and sale of residential communities. In addition, it provides construction services to third parties on certain developments in the Gafisa segment where it retains an equity interest. Its real estate business activities include developments for sale of residential units, land subdivisions and commercial buildings; construction services, and sale of units through its brokerage subsidiaries, Gafisa Vendas Intermediacao Imobiliaria Ltda and Gafisa Vendas in Rio de Janeiro, jointly referred to as Gafisa Vendas.

Forestar Group Company Profile

Forestar Group Inc. is a residential and mixed-use real estate development company. The Company operates through three segments. The Real Estate segment secures entitlements and develops infrastructure on its lands, for single-family residential and mixed-use communities. The Mineral resources segment is focused on its owned oil and gas mineral interests through promoting exploration, development and production activities. The Other segment manages its timber holdings, recreational leases and water resource initiatives. As of December 31, 2016, its core community development business had directly or through ventures interests in 50 residential and mixed-use projects consisting of 4,600 acres of real estate located in 10 states and 14 markets. As of December 31, 2016, its non-core assets included approximately 523,000 net acres of owned mineral assets, 19,000 acres of timberland and undeveloped land, four multifamily assets and approximately 20,000 acres of groundwater leases.

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