Hovnanian Enterprises Inc. (HOV) shares plummeted 5.77% in pre-market trading on Monday, following the release of the homebuilder's fiscal first-quarter 2025 results. The company reported a mixed performance, with revenue increasing year-over-year but profitability taking a hit amid rising costs and softening demand for new homes.

The key factors behind HOV's stock plunge are as follows:

1) Rising Cost Pressures: Hovnanian's homebuilding gross margin percentage, before cost of sales interest expense and land charges, declined to 18.3% from 21.8% in the prior-year quarter. The company cited higher material and labor costs as a primary driver behind the compressed margins, reflecting the broader inflationary pressures faced by the industry.

2) Slowing Demand: Despite a 6.9% increase in consolidated contracts (new home orders) year-over-year, Hovnanian's contract backlog value fell 16.1%, indicating softening demand for new homes. The company attributed this trend to persistently high mortgage rates, which have dampened homebuyer affordability and sentiment.

3) Profitability Decline: While Hovnanian's total revenue increased 13.4% year-over-year, the company's net income rose by a more modest 18.1% due to the aforementioned cost pressures and demand headwinds. This slower profit growth likely disappointed investors, contributing to the stock's decline.