Sunday, September 21, 2008

Home Builder Discounts

One quarter ago, we looked at the discounts that many home builders were trading at relative to their book values. Let's see what they look like now:

Right off the bat we see that a couple of home builders with high debt levels were unable to continue in their former states. Writedowns in this industry continued in the past quarter, as book values continued to fall. In many cases, however, market values actually rose, and therefore many of the discounts are not as pronounced as they were one quarter ago.

Looking at a distribution of these companies across debt and discount levels reveals the following:

As value investors, we are of course interested in low debt, and large discounts (we care nothing for the stock's momentum, its moving average, its support levels, and other criteria that are completely unrelated to its intrinsic value). As such, the two companies which are circled, (MHO) and (LEN) in the chart above, may offer value. Of course, this cursory glance only scratches the surface of these stocks, and so we will have to take a closer look at these companies in future posts...

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