Sixteen months ago, in the Daily Journal, Porter made the case that Hovnanian Enterprises (HOV) had quietly become a far better business than almost anyone on Wall Street understood – and that it was on its way to becoming a genuine long-term compounder.

Since that March 12, 2025, issue, HOV is up 31%. And since we recommended Hovnanian in Complete Investor, subscribers are sitting on a 50% gain. The stock trades around $134 this week.

We share those numbers not to take a victory lap. We are sharing them because the last time we owned Hovnanian, we made a mistake we have no intention of repeating. We added it to the Complete Investor recommendations list at $42.79, watched the transformation unfold almost exactly as we predicted, and then sold at the first whiff of higher interest rates. We left a fortune on the table – a 211% gain to be exact. This time, we are holding as the evidence has only strengthened our thesis.

Hovnanian used to be a “debt dog” – so buried in land and leverage that its earnings never reached shareholders, because they all went to pay the interest on its debt. Beginning around 2019, management copied the single best business model in homebuilding, the one NVR (NVR) pioneered in the late 1990s: stop buying and developing land with borrowed money, and instead buy options on finished lots you intend to build on in the near term. The land sits on someone else’s balance sheet until a homebuyer shows up. That one change turns a brutally cyclical, capital-hungry business into an asset-light, high-return machine. NVR proved it by sailing through the worst housing collapse in American history with minimal write-offs and 20%-plus returns on equity across the entire cycle.

Porter’s long-time subscribers will likely remember – his recommendation of NVR in the midst of the housing crisis has gone on to be a homerun – a 15.5% annualized return good for a 1,378% total return in 19 years.

And now Hovnanian is running the same playbook.

Hovnanian builds roughly 6,000 homes a year across 13 states, for about $3 billion in revenue. What changed – and what most investors still don’t understand – is how it finances them. You can watch the company run that exact NVR playbook in its own numbers. Optioned lots have climbed to roughly 86% of the pipeline, up from a third a decade ago, while owned lots have fallen from 67% of sales to 14%. As that land came off the balance sheet, debt and interest went with it – annual interest expense has been cut from $192 million in 2015 to roughly $45 million.

The result is that a debt-heavy business became a capital efficient one. Even back in 2021, the made-over Hovnanian threw off 21% gross margins, a 29% return on assets (“ROA”), and a 53% return on invested capital (“ROIC”) – elite figures for any business, let alone a homebuilder – while the shares still changed hands at under 4x earnings. And this is no fly-by-night operation: Hovnanian was founded in 1959 and has traded publicly since 1983, so it has plenty of Lindy DNA.

The real test, though, was the last 16 months. High mortgage rates and a cautious consumer defined the entire industry – Hovnanian’s fiscal Q2 revenue slipped 3% on 12% fewer deliveries, and the company posted a small diluted loss of $0.46 per share, half of the $0.88 loss Wall Street feared. But look at how the asset-light model carried it through a genuine downturn: