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Beazer Homes USA Inc. Message Board

  • not_a_short not_a_short Nov 14, 2002 11:58 PM Flag

    Why must homebuilders have low PEs?

    I see no reason that these companies should have a PE that is a fraction of the market PE.


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    • Naw; I don't think so. Sounds like a con job to me. How's his AES doing?? I don't own this yet, but am looking at it. Longs overenthusiastic, shorts overpesamistic. What's a poor country boy to do??

    • Doe,

      Actually Shorty IS your friend--good, solid, conservative advice on a swooning stock. Alex had a buy on this name on May 15, 2002, May 31, June 15, June 30, July 14, July 31, August 12, August 30 . . .

      You get the idea.

      Now, take a look at the weekly view below, starting with May:

      Shorty said sell this name at $70 and it went to $58, and Alex thinks that's bad advice, but a continual, cacophanous buy buy buy (more like "bye bye bye" to your $$$) since May is somehow "good" advice from your new best friend, Alexandra.

      (Btw, Alexandra will sell this stock when it sinks to $25 or so next fall and languishes there; it's when all longs eventually abandon their hopes and their favorite stocks and it is, by the way, the best time to buy.)

      Incidentally, here's a little gem I advised on about 3.5 years ago, you can check the chart (I held through $36, fwiw). Another cyclical stock, well bought with a sky high p/e and sold when the p/e compressed to something much more reasonable:

      Shorty's my friend, should be yours, too.


    • Realize that "Kamikazieee" (aka "Shorty Sez") has given totally self-motivated and erroneous "advice" in the past. Check his posts from early October, when his was hectoring and pleading with the longs to sell their shares. He "advised" that they not let a small loss get to a bigger loss, etc, and therefore they should sell - because BZH was going to $40/share that month, according to him. The price at that time was in the low $50's, and the stock never got below $51.40 (eventually bouncing back up to $70 last week).

      "Shorty" acts like he's our friend, but he isn't. I'm not saying you should put all your money into BZH (or any other stock). But I don't see the point of "averaging up" into a postion when you are buying it for reason of the fundamentals. Averaging down I can understand, but not averaging up. A 10% position is ridiculous when the stock is at book value (book value is now $61/share, needs to be updated) and below a PE of 6, with a forward PE on "next" year's projected earnings of only 4.6.

      I could see taking a "half" position if one were timid, and hope the share price falls so you can buy more cheaply if that happens. But to buy only a 10% position now and then add more as it goes up is nuts, IMO.

      Whatever. "Shorty" can't make me sell my shares, he can't have them, and that drives him nuts. I wouldn't sell last week at $70, so I sure won't sell at $61. The big money is made by choosing an undervalued stock, then exhibiting patience. Shorty has no patience, he can't afford to have it, because the more quarterly earnings reports that are issued, the greater the chance the stock will move up. As I said before, the shorts can only get my shares out of my cold, dead hands, or else they can buy them at a much higher price than now. I'll add more shares if BZH goes significantly lower, but my shares are not for sale at anywhere near this price (or lower). Good luck with your investments, whatever you decide to do.

    • Thanks for the advice, appreciate it.


    • Now that you've digested the first, simple chart, here's a little addendum so you can see the hope of April, curving, topping, curving and falling:$djushb,uu[w,a]dbclyiay[pb10!c20!c30

      Analyze it only on the basis of what you can see in the chart.


    • That's a GREAT question! (And deserves an answer). To me, earnings are earnings, no matter where they come from. I recall seeing some woman "analyst" on television back around 1999(I think on Rukeyser's show) and she said that people should buy homebuilders when the PE's were high, and sell them when the PE's were low! I'm not kidding.

      Her "logic" was that the PEs were probably high when earnings were at the "bottom" of a cycle, and that PE's were high when earnings were at their "peak" of the cycle. So she was basically telling people to avoid homebuilders at just the time when their stock prices were about to make a huge move up. Her mistake was that she was erroneous in her belief about the nature of the "cyclicality" of earnings on the homebuilders. Yes, there is some cyclicality, but its far less than in most any other industry. Check the long term EPS/year on the large publicly held homebuilders (such as DHI here):
      tatement=10YearSummary'll find that the concept of "cyclical" earnings by the homebuilders is hugely overstressed. It's nothing like the cyclicality of the semiconductor equipment vendors, or an airplane maker (Boeing), or even a trucking company. Yet those industries get far more "respect" in terms of PE multiples than do the homebuilders.

      I honestly believe there's a huge misconception regarding the earnings of the homebuilders, and their alleged "cyclicality". And you'll see story after story in the press claiming that the homebuilders are not underpriced, due to the impending downturn in their earnings. But we've seen the same stories for the past several years. These stocks are priced for a severe downturn in earnings that never happens. If the severe downturn actually happened, then perhaps they are fully priced now. But I'm happy to take the risk that earnings continue to be strong, and that the pundits are just as wrong as they've been over the past several years, and that homebuilders will finally get a PE multiple much higher than what they have today (perhaps 10-15, which they've actually been in the mid 1990's, and even this past March DHI had a multiple of 12 - I remember that, because I moved most of my DHI money at that time to MTH, which then had a PE multiple of 8, yet now MTH's multiple is higher than DHI's - now my MTH money is in BZH, figuring history will repeat again).

      At any rate, there does seem to be a ridiculous bias against homebuilders, claiming they "deserve" low PEs and low price/book values. I can't say they deserve a multiple equal to the S&P 500, but the current PEs are ridiculously low, especially on BZH. This situation also reminds me of when I was buying trucking stock ABFS like crazy in the late 90's in the single digits, when it had a PE of about 5 or 6 and was trading at less than book value. And there were shorts on that board, claiming that the truckers "deserved" low PEs and less than book valuations. Today ABFS is at $30+, has a PE multiple of 21, and a price/book of about 2.3 times. Shows that such valuations can change, as sentiment about an industry changes. It just takes time, IMO.

      • 2 Replies to Alex1444
      • Thanks for you reply. I agree that homebuilders are being priced as cyclical companies. If you look at how they did during the last recession (90-91), the few that were around then suffered a substantial drop in earnings (50% or more). It is remarkable how housing has avoided a dropoff in the current slowdown. I suspect the mildness of the downturn (unless you are in technology) and the exceptionally high employment rate (going into this recession) has something to do with it, but I really don't know. (Interest rates have fallen, but they fell in 90-91 recession and that didn't prevent a housing dropoff)

        I think that many who follow housing are missing the consolidation story. I read how housing is at an historic peak and how this implies that individual commpanies cannot grow since the market is not growing. I seldom read analyses that considers how the larger builders are capturing an increasing share of the market (either through organic growth or acquisition). I also rarely hear how these growing builders are improving margins due to economies of scale. All I hear is how better pricing is driving earnings. (well pricing is good, no doubt about that!) I believe the publically traded builders can continue to grow (or at least avoid a severe downturn) if they continue to gain market share.

        Finally, I also was into the truckers in 99-00. A different story in many ways, but the same result, exceptional values were available in what was considered an "unattractive" industry.


      • Lexie,

        First of all, if you can't understand p/e's and cyclical companies now, you soon will.

        Second, as per your quasi interminable 5~6 paragraph postings, who's the wanker?

        Or do you prefer poofter?


    • Seems logical, butg certainly not to the shorts.

17.51+0.4900(+2.88%)Dec 17 4:02 PMEST

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