What do these stock charts tell investors?

Question

New home builder stock charts. What do these mean to investors?

Best analysis!

Mike Burkett · Answer

@Danny Webber @Jay Hinrichs The price of a stock SHOULD, theoretically reflect the future discounted cash flow of a company. Let's assume this is true for these particular stocks, then the market is telling us that the future cash flow will be less than previously anticipated. Either revenues will decline or expenses will increase, or a combination of both.

To Danny's question, what does this tell us? Look at a 20 year chart of each of these stocks. When was the last time a similar decline occurred? ALL of them had a similar decline in price in 2006-2007. And we know what happened after that.

Is that what we are in store for? I don't think so. Credit underwriting today is far more restrictive than it was in 2004-2007 and there is significantly more equity held in residential real estate than back then. Are we in for a slow down? Probably. Are we in for a recession? Maybe. Be prepared. Keep sufficient liquidity and don't be over leveraged.

If a thunderstorm is coming, don't go the golf course swinging a 1 iron.

Bill F. · Answer

@Danny Webber the question is overly broad.

What type of investors? Equity or RE? If Equity, long or short? If Re, what part of the country and/or what asset class? Ect.

The answer is different for every type.

@Mike Burkett gave a reasonable answer for long equities investors in his first paragraph. But for a commercial REI who only invests in Case Shiller Composite 10 cities the impact becomes more muted.

Could a RE tease out some signal through the noise in the national builders stock price to arrive at a conclusion about their investments? Sure. But why go through all that work when you can look at more focused data like demographic shifts for your MSA, building permits for your particular asset class, closing info from a title company ect which don't have the unneeded noise that comes from a publicly traded security.

Jay Hinrichs · Answer

Only God can hit a 1 iron !!

Totally get it.. 3 years ago to build out our small communities IE 20 to 30 homes . ( which on the national scale is small) in Portland were land is a real premium that made us one of the top 30 builders in the market.. :) But 3 years ago I went with max leverage .

I am closing a 90 lot project in 2 weeks and going the other way Max equity minimum leverage.. and modeling sales at half of what we have experienced in the last 5 years.. And at todays dollar values. if building slows prices for subs will go down to help alleviate some of the over all financial impacts of the projects. Right now on new construction were we play which is first move up prices are holding firm

lux builders ( and again in our market ) Lux is 1mil and over are seeing price concessions of up to 10% and DOM longer.

Danny Webber · Answer

@Mike Burkett

LMAO- good analogy

Jay Hinrichs · Answer

profits are lower ???

based on

price of lots going up compared to when these companies were creaming the hangover inventory 5 years ago.. lots have doubled and tripled.

Lumber is up.

lack of inventory in some areas slows sales.

and building is highly regional.. lots of factors.. go into it.. those companies for instance are going huckly buck here in Vegas.. and very strong in the Portland market.. and just out of Charleston DR is quite active.

etc etc.

Shahriar Khan · Answer

I believe US market is pretty efficient.. so based on that ..market believes NPV of long term profitability isnt as good as used to be . It may be emotional bias and/or being pushed by certain institutional funds and/or whole lot of other stuff.

In a nutshell.. it should not drive any investment decisions .....

What do these stock charts tell investors?

What do these stock charts tell investors?

Most Popular Reply

6 Replies