FOR

We rate Forestar Group Inc. (FOR) as a Reduce with a composite score of 46.8/100 at a current price of $29.08. The quantitative profile shows weakness across multiple dimensions, suggesting limited upside potential and elevated risk of underperformance relative to peers over the next 12 months.

The rating is primarily driven by strength in momentum (68th percentile) and stability (39th percentile), which together account for the majority of the composite score. Offsetting weakness in quality (26th percentile) and value (32th percentile) tempers our overall conviction. We assign a No Moat rating (22/100), Medium uncertainty, and Poor capital allocation.

Key items to watch: whether strong momentum is fundamentally supported by revenue trends. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

Forestar Group Inc. holds a top-quartile position (#0 of 50) within the Finance, Insurance, And Real Estate sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 46.8/100 places it at rank #2512 in our full 7,333-stock universe. At $1.3B in market capitalization, Forestar Group Inc. is a small-cap player in the Finance, Insurance, And Real Estate space, which limits certain scale advantages but may allow for more agile strategic execution.

Despite positive momentum (68th percentile), revenue contraction of -14% creates a divergence between price action and fundamental trajectory. This divergence suggests either that the market is looking through near-term weakness or that technical factors are temporarily inflating the stock. Investors should assess whether the revenue decline reflects cyclical weakness or structural challenges.

The margin cascade tells an important story: gross margins of 21% (-55.2pp vs sector) narrow to operating margins of 10% (-7.2pp vs sector) and net margins of 7.4%, yielding a gross-to-net conversion rate of 35%. This efficient conversion suggests well-controlled operating costs and limited margin leakage between the gross and net levels.

At a current price of $29.08, Forestar Group Inc. is trading at a premium to fundamental value. Our value factor score of 32/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. The premium valuation implies the market is pricing in significant future growth or quality improvements that are not yet fully reflected in current fundamentals.

The stock currently trades at a P/E of 15.8x (a 32% premium to the sector median of 11.9x), EV/EBITDA of 18.2x (at a premium), P/B of 0.8x, P/S of 1.2x. The above-sector P/E multiple suggests the market is pricing in superior growth or quality, which our analysis finds only partially justified by current fundamentals.

We assign a Medium uncertainty rating to Forestar Group Inc.. The stock presents a balanced risk profile: below-average price stability (39th percentile) and weak quality scores (26th percentile). While not risk-free, the core business fundamentals are adequate to withstand moderate economic stress, and the range of potential outcomes around our fair value estimate is manageable.

Specific risk factors that inform our assessment include: below-average price stability (39th percentile); weak quality scores (26th percentile). Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 39th percentile and quality factor at the 26th percentile provide a quantitative summary of the overall risk landscape.

We identify limited risk mitigants at this time, which contributes to our medium uncertainty assessment. Investors should monitor for improvement in balance sheet metrics, margin stability, and business predictability that could warrant a downgrade in our risk assessment over time.

We rate Forestar Group Inc.'s capital allocation as Poor. Key concerns include suboptimal returns on capital. Exemplary capital allocators generate ROE above 20% and maintain conservative leverage — Forestar Group Inc. significantly underperforms these benchmarks, raising questions about management's ability to create shareholder value.

Investors should scrutinize management's reinvestment decisions and balance sheet trajectory before committing capital. Poor capital allocation often compounds over time: overlevered balance sheets limit strategic flexibility, while low returns on capital destroy shareholder value. We would need to see sustained improvement in profitability metrics and balance sheet discipline before considering an upgrade.

In summary, Forestar Group Inc. receives a Reduce rating with a composite score of 46.8/100 (rank #2512 of 7,333). Our quantitative framework assigns a No Moat (22/100, trend: stable), Medium uncertainty, and Poor capital allocation. The average factor score across quality, value, momentum, stability, and investment is 40/100.

Our analysis does not support a constructive view on Forestar Group Inc. at this time. The combination of limited competitive advantages, medium uncertainty, and poor capital allocation suggests unfavorable risk-reward at current levels. We recommend investors avoid new positions and existing holders consider reducing exposure.