I've lost count of the number of times I've bought Beazer Homes (BZH) over the years. Whenever the market gets spooked, this name takes an absolute pounding. This time is no different, as shares of BZH are down some 60% from their highs last year. The company now trades for a 60% discount to book value, most of which is land and newly built homes!
Here are some negatives:
- If interest stay high or go higher, it will be tough to sell homes.
- As a result, Beazer might have to take a write-down on some of the inventory they hold.
- Some of Beazer's assets include deferred taxes, which can only be converted to cash over time, and then only if the company is profitable.
These are all legitimate arguments when the discount to book is small and/or the company is being valued on current earnings (something I would never do with a cyclical industry like homebuilding). But at this massive discount to book, this sales to inventory level (currently >1), with no major debt payments due until 2025/2027, there is a massive margin of safety here.
In addition, the current quarter should be wildly profitable as the company delivers homes to buyers who are locked into lower rates. With good visibility into their backlog, Beazer should have a pretty good idea of whether they should keep building or switch into cash conservation mode, which is a nice option to have that a lot of other industries don't.
Disclosure: Author has a long position in shares of BZH
No comments:
Post a Comment