The book value is way - way off now. go through the balance sheet and the very maximum nw is 8.76. i actually think it is less. bk is a distinct possibility in 2008 or 2009
ne very careful here. Ne is helicopter Ben for a reason. The Fed, when the "time is right" will flood the market with liquidity, lower interest rates. When that happen, the snapback rally will occur and the shorts will get crushed. These are the most shorted stocks in the world!!! I am closing mine on Monday because I do not rule out a rate cut next Tuesday or the following month. Hold your ammo because even that will not work, then the short becomes worth it. The risk reward is not there right now unless the margin calls start rolling in. If that happens you can literally short anything with an emphasis on consumer discretionary. Boats, mobile home makers, retirement condos, ATV makers, etc. I like BC as a short especially
Very interesting post..and another point I had never really considered. How many thousands of businesses were started during the bubble years with people using their homes for collateral? The reckless banks likely loaned max amounts and expected that limitless home appreciation would secure their interest...but now the homes are depreciating. So, if these businesses start to fail, which is likely without Joe Sixpack's home ATM, combined with the insane levels of overbuilding, the banks are f***ed. They can force a sale on an house worth far less than the amount they loaned...the business and home debtor just follows Cramer's advice and 'walks away' from the business and the house...laughing. The fun has barely begun...IMO
I have looked at and massaged my numbers since your post and the lowest NW that I can come up with is about $10. I understand it may get worse, but would you please share with us how you came up with such a low number present value.
ptgkc, two thoughts from your post. First, did you notice the large sell off at the end of the day? Very large number of shares sold today vs. the average. I think you are right that the institutions are begining to move away.
Secondly, this quarter should be the best quarter for the year and all home builders are failing big time. I think you may be right on target for a price in the low teens by year end. More than likely 70% of book value.
No guidance ... no vision ... and heavily over weighted in land!
I think all the answers you have put together a bigger picture in the original discussion of real book value. The key phrase to describe it so far is diminishing value asset.
It is inventory, which is an asset on the books. However, there are costs associated with it, like the mentioned taxes (unless they made a deal with the locality for TIFs, which greatly reduce exposure there).
The bigger problem is the declining value of the land they own or have options to buy. They can't realistically build now, there is already too much supply. Their margins on houses already built is declining. Even with reducing their work force by 16%, they are still losing money, quarter over quarter. While they might want to hold the land and ride out the slump (it's going to last too long), so they may not have much choice, but to sell to generate cash, regardless of loss. Those losses are chargeoffs, which not only reduce the asset value of the company on the books by the cost of the original price paid, but they can't recoup the full value, which accelerates the depreciation in the value of the company.
The only thing holding the stock price together is the large institutional amount of holdings. Even they want out (except for real estate index funds), but have to unwind slowly. Note how how they managed to prop up the price. In February, it hit $26 and looked ripe for total collapse. It went back to $28 and they've managed it for 4 months before finally falling through 25, a key support level.
The second quarter numbers are going to be awful for the industry, and we're just getting started. Lennar was the first domino, and KB is up next on Thursday. The street might be able to justify bad numbers and hold the stock price up if there was light at the end of the tunnel. However, for two quarters in a row, everyone is withholding forward guidance and in fact warning that there is no turn around in sight.
I'm sticking by my prediction of $13.20 price by year end.