Interesting how a stock's "suggested price" can be determined, even in the absence of a chart (i.e. history of past prices), and even without similar companies for comparison. In its purest form, a suggested can be arrived at via a computer algorithm, using earnings and expectations, balance sheet information, interest rates, etc. - as Quicken.com has done at their website, for "intrinsic value":
Hmmm, $195.74 - it would only take a 211% increase for BZH to get there, compared with today's close of $62.90.
Of course, if one were to assume that the homebuilders as a group are properly valued (other than BZH), then BZH would merely need a 17% gain to reach the price of $73.78 to match the current median PE for large homebuilders (6.87 PE current median).
On the other hand, if BZH were to match the PE of NVR (which is the homebuilder with the second highest PE of the 14 "majors") then it would have to rise 69% to $106.43 (NVR PE being now 9.91).
And of course, there's always the possibility of a buyout. If BZH should happen to get bought out, it would be the 4th homebuilder I've had that announced it was being purchased while I owned it. I've had SHLR, which was bought by DHI this year (announcement was around this time last year), WBB (Del Webb) which was bought by PHM a couple years ago, and Continental (CON) which was bought by DHI around 1996 or so (I forget exactly the year).
Most interesting of those might be Continental having been bought out by DHI. As I recall, the PE on Continental was about 10, when the industry average was about 14-15. DHI's PE was 17 or so, and they took advantage of this by using their shares to purchase Continental. In doing so, they valued CON at a PE of about 14, which still made the purchase accretive to them, even before cost reductions. It was definitely a win/win situation, as Continental remains one of DHI's premier brands today.
Now if a builder with a relatively high PE wanted to use its shares to purchase BZH, this could very well be beneficial to the buyer. I don't know if BZH would be for sale, and I'd prefer it be given a higher PE on its own, but who knows. NVR with a PE of 9.91 could offer a buyout at say a PE of 8 - which would be accretive to NVR as well as helping to diversify them geographically. BZH in return would be getting essentially $85.92/share worth of stock, or 36% above the current share price.
Now again, I'd rather BZH remain independent and rise to at least my 2003 target of $120, but those buyouts of undervalued stocks can happen at any time (as "kamikazieee" can tell you, regarding HI). Just shows there are many ways to value a stock, many ways to get to a higher price. And you don't even need a chart to direct you there.
That right alex,
It like me counting cards at the black jack table.....Works well some times...... and sometimes someone comes along and just makes bad decissions like hitting a 15 when the dealer is showing a 6.... It not a complete science.... nor is LT investment.... Because there always can be a executive that takes your card and there goes your PE ratio.....
Great post, aaaaa20072000. Says it all about these people. But no, I didn't ever see the old men gambling like that. Whatever floats their boat, I guess. I guess daytraders "feel lucky", or think they have a "system" that works. Sort of like those "systems" people think they have for playing the horses, roulette wheel, etc. Daytrading = entertaining way to p*ss away their money, I suppose.
msft has a monopoly on pc os, and the biggest mkt share in pc software, it didn't prevent it from dropping from 120 to 40. the convinience store next to my house has been profitable for 30 years. i wouldn't call that a growth biz. all depends on how you look at it. haven't we heard how some ppl were defending the dot com stocks, the storage stocks, the optical stocks when they were trading in the lala land? how new economy is different then the old? how 'things have changed'?
the bottom line is the home builders are not market leaders, and will never be. they go up in a real estate boom, and will go down in a real estate bust. now the real estate boom is at it's peak, if it's not on the other side of the hill yet.
<They don't know the fundamental story, they don't want to know the fundamental story.>
Your right....because it doesnt matter to them.... That is the point.
<Even if they thought the homebuilders were overvalued (on a fundamental basis), why would they choose BZH?>
Why....just look at it history....go chart it and look at the peaks and valleys....It been a great stock for day trading.... Is it really that difficult to see this...
<Also, BZH could get bought out at any time>
What methods has the company put in to prevent a takeover???? You need to do a little more research.
<and that's not something serious investors should do>
Who said day traders are serious investors??? There not.... People have been using the stock market for gambling for decades....this isnt something new..... Did you ever go down with your father and watch the old men day trading 40 years ago..... Those guys did it for the thrill of it.... They didnt do it for investment .....
<<< remember this is a cyclical stock, not a growth stock. >>>
Oh brother. You are showing your ignorance there. Sure, almost all stocks are "cyclical" to some degree - in that the tend to earn more in a strong economy than a weak one, but it's a fallacy that the homebuilder stocks are highly cyclical (in terms of earnings; sure, the share price cycles up and down, but that's not the definition of a cyclical). Homebuilders are nowhere near as cyclical as semiconductor equipment, airlines, autos, etc. The business has changed, homebuilders manage their inventory better, and build to order rather than spec building. And the "growth" part of the large homebuilders (such as BZH) is that they are taking market share from the little guys (the "mom and pop" builders). The market share of the major HBs in the USA went from 10% in 1990 to 20% today. And it's growing. Yes, it is a growth story; no, these aren't highly cyclical. DHI has made a profit every quarter for 100 quarters (i.e. 25 years) - is that "cyclical"? Too bad you missed earlier discussions on this message board regarding alleged "cyclicality". You'll have to pay for your lack of insight, with a heavy loss from your short position in BZH. Oh well, live and learn.
Have a great weekend, fellow longs!
I don't agree that the 14.5% growth rate is unrealistic (and those are the analyst projections, not numbers I invented) for a 5 year annualized EPS growth rate - after all, the 10 year annualized EPS growth rate (past 10 years) is about 20%.
But I do agree that even at a much slower 5 year growth rate, BZH would still be undervalued (your 6%, $80/share figures). And I also agree that the short-term chartist-bears are missing the big picture. They don't know the fundamental story, they don't want to know the fundamental story. Even if they thought the homebuilders were overvalued (on a fundamental basis), why would they choose BZH? Doesn't make sense, given the relative value BZH offers over the average HB. So it's clear that the shorters of BZH are pure technicians.
The daytrading chartists think they are safe if they watch every tick of the stock, but that misses a few points. One is that the stock can move up very fast, and the spreads can become wide (I've seen spreads as high as $1/share on BZH, during regular trading; that's extremely rare - usual spread is only about 10 cents or so, but it has gone to $1 in extreme cases).
Also, BZH could get bought out at any time; happens a lot when valuations are so low (and perhaps held down "artificially" by the shorts). BZH could sell to NVR; NVR could pay $86/share (in stock)- which would be valuing BZH with a PE of only 8. This would be immediately accretive to NVR, would immediately improve NVR's book value/share, would immediately improve NVR's geographic diversification (NVR is a bit too dependent on Washington DC area now). I would hope BZH stays independent and rises on its own, but if the shorts keep the price down, then I wouldn't mind seeing them get burned in an instant - by a buyout they wouldn't "see" coming with their charts.
But I'm a longer term investor, I just like to poke fun at the shorts, and post my ideas here. I'm not saying BZH should really be $195/share (as per Quicken.com) but it shows there are many ways to value the shares, including that one. The chartists should expand their ideas about a stock price, to include value - because in the longer term, value DOES show up in the share price. Until then, the shorts are just playing a "burning match" game - and that's not something serious investors should do, IMO.
first of all, i'm not sure where did you derive the 25% housing mkt downturn risk from. maybe you are talking about the risk of a crash. cuz to me a 'downturn' is imminent. just a matter of how soon and how fast. also the stock was trading in a range between 10 to 30 before yr 2000. the big jump in stock price was obviously due to the big jump in earnings, which is definately not sustainable. remember this is a cyclical stock, not a growth stock.
SHORTY SEZ: Why bother w/ resarch? Why bother w/ charts? Why bother? Quicken has all the answers.
Better than worrying about the economy, the sector, interest rates, etc.
Just use Quicken.
THE MARKET IS WRONG!!! BZH has lowest PE, so it must be best value!!! NO REASON NOT TO OWN IT!!! Who needs research? The market is stupid. Quicken is smart. What is Yahoo's current 1 yr projection for BZH? When we get sector multiple, stock will be up a lot. Then market multiple. Then PREMIUM multiple due to high growth rates. This stock can go to $995!
sOOn to the mOOn!
<<< SHORTY SEZ: Why bother w/ resarch? >>>
Good point. Why bother with research, when you have your charts to guide you? They'd never fail you. Enjoy your charting-astrology, enjoy the losses they bring you. You're hopeless. It will be fun to see you, Kodiak, jmny, rowbill ring up huge losses. Perhaps then you'll finally give up your chartology; nah, you'll just study it even more, figuring if you just work it harder, it will come through for you. So sad. But funny too.
There was a short squib this morning on rising interest rates, ah here it is:
I liked the histogrammic bars on rate of change in housing prices.
As for Quicken, it's probably one of the more dangerous little black boxes you can look at if your goal is to buy a stock which will go up and avoid ones which will go down. Plug in tickers for almost any stock which has risen in the last 2 months (LU, AKAM, Q) and you'll find it gives zero value. Zero. So when LU was a 60 cent stock it was worth even less, same for AKAM.
Look at RYL. It has an intrinsic value of over $120 per share, but a market value of $38. I bet that hasn't changed in several months.
So the correct play a few months ago was to go long RYL (in anticipation of tripling your dough) and shorting LU or Q.
I don't have time right now to go back and backtest that great Quicken theory for ROI, but my best guess is:
it was not a money earner. It was, in fact, a money burner.
But I guess as long as we don't use the theory to make money, it's a pretty damn good analytical tool.