This quarter, Tri Pointe Homes’s revenue fell by 2.2% year on year to $1.23 billion but beat Wall Street’s estimates by 1.5%.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months, a slight deceleration versus the last two years. This projection doesn't excite us and implies its products and services will see some demand headwinds.

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Operating Margin

Tri Pointe Homes has been an efficient company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 14.3%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Looking at the trend in its profitability, Tri Pointe Homes’s operating margin might have seen some fluctuations but has generally stayed the same over the last five years , highlighting the long-term consistency of its business.

This quarter, Tri Pointe Homes generated an operating profit margin of 12.9%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Tri Pointe Homes’s EPS grew at an astounding 26.8% compounded annual growth rate over the last five years, higher than its 7.7% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t expand.

We can take a deeper look into Tri Pointe Homes’s earnings quality to better understand the drivers of its performance. A five-year view shows that Tri Pointe Homes has repurchased its stock, shrinking its share count by 32.2%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Tri Pointe Homes, its two-year annual EPS declines of 6.9% mark a reversal from its (seemingly) healthy five-year trend. We hope Tri Pointe Homes can return to earnings growth in the future.

In Q4, Tri Pointe Homes reported EPS at $1.37, in line with the same quarter last year. This print beat analysts’ estimates by 6.4%. Over the next 12 months, Wall Street expects Tri Pointe Homes’s full-year EPS of $4.83 to shrink by 6.2%.

Key Takeaways from Tri Pointe Homes’s Q4 Results

We were impressed by how Tri Pointe Homes beat analysts’ revenue and EBITDA expectations this quarter. On the other hand, its backlog missed significantly, and this is a leading indicator of future revenue. Management blamed "elevated mortgage rates" for the weakness. The stock traded down 5.5% to $34.21 immediately after reporting.

So do we think Tri Pointe Homes is an attractive buy at the current price? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free .