Sunday, November 4, 2018

The New Home Company

Beazer is not the only home builder I like right now. The New Home Company is also a profitable home builder that I think trades at a big discount to its intrinsic value. I bought it last week on some extreme volatility as the markets tanked.

New Home traded last week at about a 45% discount to tangible book value, but as stated it is profitable, and has no debt due until 2022.

It's a small company, but has a rather successful recent past, with good profits and growth until recently. They started as a seller of luxury homes, but as that market slowed they moved downmarket towards faster selling homes.

The CEO owns about $9 million worth of stock, versus a salary (including bonus) of $2 million. That salary seems a bit high; nevertheless, management appears to behave like shareholders, as they recently started accelerating share buybacks rather than use the cash to buy more land, thanks to the low share price.

The company just reported its quarterly results as well, and was up 8% on that report. But it gave back all those gains the following day on a general market sell-off! The first thing management highlighted on the conference call was the huge discount to book and how the CEO thinks the stock is low but that he views it as a challenge for him to rectify, recognizing both the capital allocation opportunity as well as the challenge to improve profitability.

As with financials and many retailers, I use a basket approach when it comes to home builders. They make a commodity product that is easy to copy thanks to competitive forces, so I don't like to risk too much capital on any one name. But when the industry takes a beating, I still like to participate, so I spread my bets out.

Disclosure: Author has a long position in shares of NWHM

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