profit for 2006 .They were 1/2 right. In 2006 they made $2.67/share. They ended the year with a PE of 12. If that's the new accepted industry figure, what should the stock sell for if they're lucky enough to make a $1/share in 2007?
Home building is a cyclical industry, characterized by low P/Es at cycle tops and high P/Es at cycle bottoms.
Right now we're in the early stages of the down cycle. P/Es were low at last year's top and are going to head into negative territory before they start to recover. Stock prices will track the cycle down. How long the bottom lasts is anyone's guess, but it is simply absurd to assume it won't last for several quarters at the least.
When they start to recover, and be attractive as a buy, is when they return to sustained profitability reflected in QoQ earnings growth and high P/Es.
These stocks are being propped up by institutions who are still extremely overweighted in this sector. And as they take the opportunity to unwind their positions, as the wise ones will be doing by selling into today's strength, less and less supply will be in control of a few hands. That will be the breaking point for these stocks.
When will that come? My guess is when the spring selling season turns out to be disappointing and Pulte is forced to provide a full outlook for 2007 which is worse than the limited guidance they provided with yesterday's earnings report. Specifically, expect more impairments and option wrtie-offs, swelling inventories, lower selling prices and margins squeezed even lower.