Homebuilders revisited

In the past, I’ve written various posts about shorting US homebuilders.  This post look at lessons that could be learned from the experience.  I was largely right about which companies were the worst.  However, I was hurt by the favorable macroeconomic environment for homebuilders.

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Hovnanian (HOV)

Hovnanian has a huge mountain of debt that it is trying to outrun.  Management has been diligently extending maturities on Hovnanian’s debt and raising capital through secondary offerings.  My short thesis is this:

1. Hovnanian is overvalued if you were to sell off all of its assets.  Its market cap is $760M.   Book value is -$478M (yes, that’s a negative sign).
2. It’s losing money.
3. They are one of the worst managed homebuilders so they will likely continue to perform poorly in the future.

US Homebuilders: Time to Short Them?

In the past 12 months, homebuilding stocks have jumped in anticipation of a rebound in housing prices.  So far, the rebound hasn’t even occurred yet!  Home prices have stayed roughly flat since 2009.

While I don’t think that I am any good at predicting future home prices, it seems to me that some homebuilders are overvalued.  There are some homebuilders trading well above their book value despite being unprofitable.