I'm glad to see that you have got some positive momentum out of this stock over the past few days.
The reason I remain neutral on BZH is due to a past history of them not being able to meet analyst expectations and perceived bad management as evidenced by low margins. Also, I can't make sense out of this Geo-Mexico adventure.
I noticed they actually delivered a moderate (when compared to other home builders) suprise this time. Good news.
Out of the 19 stocks in this sector I follow, BZH is the sixth cheapest by my valuation formula, and the second cheapest "quasi-national" homebuilder after U.S. Home. Not to shabby.
If they could boost their margins and hit earnings estimates consistently then this stock could take off. Their PSR of .18 is one of the lowest in the industry.
Additionally, their price/book ratio of .82 is the lowest of the quasi-national homebuilders. Despite their run-up over the past year, they are still very much a value play. This price book ratio should significantly limit their downside.
Their margins weren't always this bad. They were over 4% in 1993. Then they trended downward to 3% in '94, 1.8% in '95, 2% in '96 and 1.2% in '97.
The main culprit has been SG&A expenses. They have increased from approximately 9% of gross revenue to 13% of gross revenue. This calculates out to a 44% increase over 4 years.
Why? According to management, this is due to higher overhead and marketing costs due to an increase in active subdivisions.
I don't know if I buy that. Theoretically, the increase in revenue from these divisions would offset the increase in SG&A and keep the SG&A % the same.
From what I have heard, management at Beazer is extremely top heavy and very well paid. They need a good right-sizing. That would cut SG&A.
Maybe a takeover candidate?
By the way since I am not on the DHI board to catch flak from the paradise bulls I will comment on what happened Monday.
If you recall one of my later postings, I said something to the effect that:
"It is not as important what the state of home building is, or what it actually will be in the future. The most important thing is what the market thinks that the home building market will be in the future. This is what drives the prices up and down."
Monday was a great example of this. Just the thought of higher interest rates and the market sent this sector down 8% fast. Nothing fundamental had changed. Only market opinion. It was quick and brutal.
This is the all to real risk in this sector I was trying to get across to the other people read the board. Hopefully with an example like this, it registered with some people. With others, I don't think it will ever register.
Stephen, thanks for commenting on the margin of BZH.
1) I saw BZH margin had dropped sharply since it went public in 1993; did not realize it until you point out S&G increase (too lazy to check multi-year financials. my fault. Bought in following John Neff's 97 and 98 recommendation).
2) I fully agree with you on the discrepency between market perception of future and business fundamentals of present and future. You're right on.
The 25% drop in LEN and DHI (36 to 27, 24 to 18) is my lastest lesson. Fortunately, I have more than 100% profit in DHI @ $18, and 50% profit in half of my LEN position and 10% down the other half. Not bad for a novice.
3) Off-topics: have you paid attention to cement producers, SDW, LCE, TXI, etc. TXI looks good to me at this price. Care to comment on it? (already tripled in the past yr.)