Friday, October 12, 2007 0 comments ++[ CLICK TO COMMENT ]++

Beazer Homes: Unbelievable Number of Shares Short (as of Sept 11 2007)

I think homebuilders (and related sectors) are a good contrarian area to investigate. I have indicated in the past of my interest in the Pulte Homes bonds (PHA). So I have been researching this sector recently and I came across an amazing short ratio for Beazer homes (BZH).

Beazer (BZH) is a struggling homebuilder that is one of the riskiest around. A lot of their customers are in the low-income market--the segment that has been hit hard by subprime problems and a slowing economy--so they are going to have a tough time navigating the waters for the time being.

I just noticed that, if Yahoo Finance numbers are to be believed, as of September 11 2007, BZH has a 80% of their float shorted!!! This is an unbelievable number for a company that is not closely held. The short ratio, however, is low at 9.4 since there is heavy volume in this stock (short ratio is the number of days that it would take to cover the short if all the trading volume were used to cover). I have no idea how much of the shorts have been covered since those numbers were published (I suspect not many given the stock price behaviour), but regardless of the circumstance that is a huge number.

The market clearly thinks that this company is going bankrupt--or at least a lot lower. If I ever wanted to take a highly speculative bet on a homebuilder, this one is worth a look. It's extremely risky (I think companies like Pulte will survive but Beazer is a question mark).

Here are some key numbers as of today:

Beazer Homes (BZH)

Market cap: $367 million
Total debt: $1.7 billion
P/E: negative (forward P/E is also negative)
P/Sales: 0.09
P/Book-value: 0.27
Debt/Equity: 1.2

Anything that trades at around 30% of book value is a steal or is there for a reason. The debt to equity ratio is kind of scary, especially if you think equity will be marked down. According to the quotation from finra (a great site for bond quotes), Beazer bonds are trading 20% to 25% below par with yields of 11% to 15%.

I'm adding BZH to my watch list.

(I am also adding embattled mortgage lender, Countrywide Financial (CFC), to my watch list. I already have a tiny stake in Delta Financial (DFC) but CFC looks interesting from a contrarian point of view. Given all the negativity and attacks by practically everyone, I can see CFC bouncing back. The only thing I see is that it is only trading around 25% below book value, which isn't a huge margin of safety (but for large caps it is a big discount). I haven't done much research but, if is correct, a large number of value investors, such as Bill Miller, Wally Weitz, and Richard Pzena, own CFC).)

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