Greenlight Capital: “Green Brick Partners (GRBK), Our Largest Position, Doubled in 2020”

Jose Karlo Mari Tottoc
·4 min read

Greenlight Capital, an investment management firm, published its first quarter 2021 investor letter – a copy of which can be downloaded here. A return of -0.1% was reported by the fund for the Q1 of 2021, below its S&P 500 benchmark that had a 6.2% return in the same period. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

Greenlight Capital, in their Q1 2021 investor letter, mentioned Green Brick Partners, Inc. (NASDAQ: GRBK) and shared their insights on the company. Green Brick Partners, Inc. is a Plano, Texas-based operative builders operation company that currently has a $1.3 billion market capitalization. Since the beginning of the year, GRBK delivered a 16.77% return, extending its 12-month gains to 242.84%. As of April 16, 2021, the stock closed at $26.81 per share.

Here is what Greenlight Capital has to say about Green Brick Partners, Inc. in their Q1 2021 investor letter:

"Green Brick Partners (GRBK), our largest position, doubled in 2020. This led to an excessive weighting within our portfolio. In January, we sold approximately one-quarter of our shares in an underwritten offering. As is customary, we sold at a discount, which hurt our January result. It took a while for the market to digest the shares and, as a result, GRBK underperformed its peers, which generally advanced over 20% during the quarter.

GRBK, as a business, had excellent results. Full year 2020 earnings per share were up 97%. More importantly, its backlog grew 86% and its lot position grew 61%. In early 2021, the business accelerated further, with new orders up 80% through February, ahead of last year’s 76% growth in the comparable (pre-COVID) period. Normally, the business is limited by sales. Currently, GRBK is limited by how many houses it is able to build and how quickly it is able to build them. This is what we call “a high class problem.”

There is a shortage of inventory of new or existing homes for sale, so house prices are rising. The pricing umbrella has allowed GRBK to raise prices faster than costs, some of which are rising sharply. The result is the company expects 2021 to be another year of exciting growth. The company is now planning for a multi-year housing boom, of which it believes we are still in the early stages. In 2020, GRBK earned $2.23 per share, leaving the stock inexpensive at just over 10x trailing earnings, with the growth in 2021 and beyond still to come. While the position is still our largest, we are currently comfortable with the sizing."

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Our calculations show that Green Brick Partners, Inc. (NASDAQ: GRBK) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the fourth quarter of 2020, Green Brick Partners, Inc. was in 12 hedge fund portfolios, compared to 13 funds in the third quarter. GRBK delivered a 24.76% return in the past 3 months.

The top 10 stocks among hedge funds returned 231.2% between 2015 and 2020, and outperformed the S&P 500 Index ETFs by more than 126 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Here you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

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