Dream Finders Homes: Rapidly Growing, Acquisitive, Asset-Light

Stephen Dodson of Bretton Fund presented his investment thesis on Dream Finders Homes (US: DFH) at Best Ideas 2022.

Thesis summary:

Dream Finders Homes is a relatively young and rapidly growing homebuilder pursuing an asset-light strategy, similar to NVR. Founded in 2009, Dream Finders is growing fast off a low base. Given the structural housing shortage in the US, there’s a long runway of secular growth for new homes, particularly in its core markets in the southern US.

DFH has been relatively aggressive in its acquisition strategy, recently acquiring a company that will increase its size by 50%, yet has been able to maintain a modest debt level of ~2x 2022 EBITDA. As it has grown, it has been able to expand margins and has room for even more.

Unlike traditional homebuilders who purchase and hold land for years, Dream Finders uses option agreements, leading to inventory turns double the industry average and higher free cash flow.

As a small, newer issue, DFH trades at a deep discount, at only 5x 2023 EPS.

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About the instructor:

Stephen Dodson is the president and founder of Bretton Capital Management and serves as the portfolio manager to the Bretton Fund, a mutual fund with a long-term, concentrated, value strategy. Stephen serves on the San Francisco advisory board for YIMBY Action, a housing advocacy group.

Prior to founding Bretton in 2010, he served as president, portfolio manager, and chief operating officer of Parnassus Investments, a family of mutual funds. He previously worked for the venture capital group of Advent International, a private equity firm, and was an investment banker for Morgan Stanley in New York and Menlo Park.