Today’s housing starts number for September was highly misleading, as the overall headline result was skewed by a big jump in multi-family units, primarily 2-4 unit buildings. Single-family home starts declined 5% from August to September. It’s the single family unit starts that are relevant to publicly traded homebuilders. Their stocks continue to be more overvalued today than at the peak of the housing bubble.
I have a new homebuilder short-sell report posted. I want to share an interesting story about this Company, which further adds to the number of “red flags” I have found buried in this Company’s financials.
In late 2013 I wrote an article showing how this Company was managing its earnings per share with share buybacks and inappropriate NOL reversals. Mr. Zeumer sent me an email questioning my math on the effect of the share buybacks and Net Operating Loss reversals. I replied by saying that my math was laid out in detail in the article and that if he was confident that the Company’s math and its use of NOL reversals was appropriate, then he and rest of upper management should take after-tax cash from their bank accounts and buy the stock for their own accounts. I added: “we know that management has been good at selling stock into the Company share buybacks.” Not surprisingly, I never heard back from him after that.
This particular Company reports its earnings soon. While I have no opinion with regard to whether it will miss consensus or use the accounting gimmicks I present in the report to engineer a “beat,” the Company did miss earnings last quarter. I would suggest the way to play this one is to take a partial short position ahead of earnings with the intent to add if the Company “engineers” a beat and the stock pops, or wait until after earnings to start building a short position. Either way, this stock is eventually going a lot lower: NEW HOMEBUILDER SHORT-SELL REPORT