Wednesday, May 8, 2019

Beazer the Pleaser

Last year, shares of Beazer Homes fell big-time on the expectation that rising rates would kill consumer appetite for homes. So I bought some, as discussed here. Last week, I sold the shares following an appreciation in the stock of over 50%.

One of my favourite types of opportunity is when the market takes an extreme view. Predicting is hard, and so when the market goes out on a limb with a wild take, it can leave some profitable opportunities in its wake.

In this case, Mr. Market appears to have taken a compounded view, which is even harder to get right. First, that central banks would keep raising rates. And second, that this would cause consumers to drastically slow down their home-buying.

Well, the first didn't really happen; central banks turned dovish in the last few months, and rates have softened.

In taking this view, Mr. Market battered the shares of Beazer to the point that they traded at some 40%+ discount to book value. Last week, the shares were back to trading at a premium to book! So I took the opportunity to exit.

I reserve the right to buy back into this one. In the future, if Mr. Market again focuses on current earnings, rather than the assets a company like this owns, I'll likely find myself right back in.

Interestingly, however, another home builder I've owned over a similar time period has not done so well. I'm still waiting for Mr. Market to warm back up to shares of The New Home Company, as discussed here.

Disclosure: Author has a long position in shares of NWHM


Anonymous said...

NWHM was discussed in Third Avenue Real Estate Value Fund this quarter

Anonymous said...

Thanks Saj for the initial idea. I bought the 2025 bonds back in October and blew out of them last week for a nice high teens total gain and ~ 30ish IRR, so not bad!

Anonymous said...

Thanks for the post! What are you subtracting out of stockholders' equity to get your book value figure? I see 529M and 32M shares. Thanks for any insight.

Saj Karsan said...

Good catch, Anon2. I'm using tangible book. But at the same time, I heavily discount the future tax assets. I'm reasonably sure they will be realized, but not fully for a long time.