Building Value in Uncertain Times: United Homes Group's Margin Play and Strategic Resilience

In an era where housing demand volatility and balance sheet risks dominate headlines, United Homes Group (UHG) has quietly positioned itself as a contrarian play. Despite reporting a 19% year-over-year decline in home closings for Q1 2025, the company’s focus on margin expansion, liquidity preservation, and strategic inventory management has created a compelling investment case. For investors willing to look past near-term volume headwinds, UHG’s structural shift toward premium product lines and cost discipline may offer a rare opportunity to capitalize on a margin-driven recovery.

The Margin Turnaround: From Speculation to Profitability

The heart of UHG’s turnaround lies in its product refresh initiative, a strategic pivot toward high-margin home designs. As of April 2025, 91 homes in UHG’s backlog are now part of this initiative, with average gross margins of 24%—a 500-basis-point improvement over the company’s historical average of 16.2%. This shift is no accident: management has deliberately reduced speculative construction (down 21% year-over-year) to prioritize pre-sales of these premium models, which require fewer incentives and generate higher margins.

The results are already visible. In Q1 2025, 23 of the 252 homes closed were part of the refreshed line, contributing significantly to sequential margin improvements. By March, gross margins had risen 400 basis points from January, signaling a clear upward trajectory. With $3.5 million in direct construction cost savings identified and set to flow through earnings in the second half of 2025, this margin expansion is not a one-quarter blip—it’s a structural shift.

Liquidity: A Cushion Against Uncertainty

UHG’s liquidity profile further underscores its resilience. The company holds $86.9 million in available cash and undrawn credit facilities, providing ample buffer against macro risks like rising interest rates or mortgage availability constraints. This liquidity is critical given its $17.8 million derivative liability, which, while volatile, remains non-cash and has shrunk 55% year-over-year as stock price fluctuations reduced fair-value adjustments.

While derivative liabilities pose earnings volatility—a $21.2 million non-cash gain in Q1 2025 vs. $26.4 million in 2024—their declining balance and eventual expiration in five years limit long-term dilution risk. Meanwhile, UHG’s adjusted book value of $95.7 million (excluding goodwill and derivatives) suggests the company is undervalued relative to its equity fundamentals.

Navigating Demand Risks: A Play on Southeastern Growth

Critics will point to UHG’s 23% year-over-year decline in net new orders and the 29% drop in backlog inventory as signs of weakness. But these metrics mask a deliberate strategy: UHG is aligning supply with demand in high-growth southeastern markets like South Carolina and Georgia. By reducing speculative inventory (down 44% in key regions), the company is avoiding overexposure to a potential housing slowdown.

Management’s commentary reinforces this thesis. CEO Jamie Pirrello noted that March sales rebounded strongly after a weather-impacted January, with the backlog of premium homes now driving momentum. Meanwhile, the $75.3 million backlog value (despite unit declines) reflects higher ASPs for premium designs—a $345,000 average sale price, up from $335,000 in 2024.

Why Act Now? The Catalysts Ahead

1. Margin Acceleration: The 24% margin designs now account for 36% of backlog. As these homes close in 2025, gross margins could expand to 18–20%, narrowing the gap with industry peers.
2. Cost Savings Realization: The $3.5 million in construction savings will directly boost profitability in H2 2025, compounding the margin tailwind.
3. Liquidity-Driven Flexibility: UHG’s cash buffer allows it to weather macro turbulence while executing its strategy.

Risks and Counterpoints

• Derivative Volatility: Stock price swings could pressure earnings again, but the liability’s five-year horizon and shrinking balance limit this risk.
• Housing Demand: A broader downturn could strain margins, but UHG’s focus on pre-sales and high-growth markets reduces exposure to speculative overbuilding.

Conclusion: A Margin-Driven Entry Point

United Homes Group is not a play on housing volume growth—it’s a bet on operational discipline and margin optimization in a consolidating industry. With a $95.7 million adjusted book value, $86.9 million in liquidity, and a product mix increasingly skewed toward high-margin homes, UHG offers a rare combination of defensive resilience and growth catalysts.

Investors who overlook near-term closings declines and focus on the structural shift in profitability may find themselves on the right side of a margin-driven recovery. For those with a 2–3 year horizon, UHG’s stock presents a compelling entry point—one where patience could be richly rewarded.