This is my best work yet. This particular homebuilder had $262,000 of debt on the balance sheet for every home it delivered at the peak of the market. Today is has a stunning $630,000 of debt for each home it has delivered over the last 12 months. It’s contract signings are in decline per its latest 10-Q disclosure.
In my view, shorting this stock now offers the investor the potential for a 70% gain over the next two years. In addition to its high level of debt, I have uncovered a high degree of questionable and misleading accounting maneuvers this company uses to make its p/e ratio look lower and to make all of its other financial analysis ratios appear more favorable. I can honestly say that I have never come across worse financial disclosure at a large-cap public company.
You can access the report here: Homebuilder Research Reports
The DJUSHB home construction index has bounced nicely off of a very oversold technical condition. While it could move higher, and up and over its 50 day moving average, the 50 dma has crossed below the 200 dma – the nefarious “death cross.”
While I think right now is a great time to establish or add to a short position, please manage your capital prudently. This particular homebuilder does not have a huge short position yet like many other homebuilders. That will limit the “short-squeeze” spike other stocks experience.
The housing market is starting to really fold, I don’t care what the propaganda artists and spin-meisters are saying. They are wrong.