Stock Question - DHOM

Question

Long time stalker on the sports wagering boards.  Don&#x27;t really post as I could throw up my picks, but really, with all of the other great posters on here, why bother with my shots in the dark?  I definitely appreciate all of the time and effort others put in, and feel like this board may be my best hope to make a meaningful contribution as I have a pretty decent background (I have been investing in stocks since I was 14) and work as public accountant with a Big 4 firm, so I know a thing or two about financial statements.&#xD;&#xA; &#xD;&#xA;Anyways, enough with my brief introduction.  I am hoping someone can explain to me why not to buy DHOM.  I have pretty decent background in stocks, but am usually more of a long-term value investor (i.e. MO, XOM, BAC (until recently), etc.) &#xD;&#xA; &#xD;&#xA;Anyways, my thought about this company is that it pretty much blows.  Homebuilder that was not even making a great return before the housing bubble began to pop.  However, it has been hit so hard that it now has a Market Cap of $13 million.  If you check out its latest Q, its book value is considerably higher than this.&#xD;&#xA; &#xD;&#xA;Now, if this was a manufacturer, I wouldn&#x27;t place too much stock in book value.  But this is a home builder, and the majority of its assets are real estate based.  The real estate has already been written down to the lower of cost or market.  And, while the real estate market has dropped, land is land.  It will always hold a value and should eventually appreciate over time.  It is not like having an inventory full of clothes, or computer chips that are tough to sell.&#xD;&#xA; &#xD;&#xA;Why is this selling for so low?  I do my own research on stocks, but have not seen a single article, report on this one.  I&#x27;m hoping someone out here who may have a little more experience in the market can explain to me why not to buy this stock, because I usually shy away from stocks like this, but I just can&#x27;t see how this company, can really be worth $13 million when you look at its balance sheet.&#xD;&#xA; &#xD;&#xA;Thanks in advance for any help.

Wake2002 · Answer

Long time stalker on the sports wagering boards.  Don&#x27;t really post as I could throw up my picks, but really, with all of the other great posters on here, why bother with my shots in the dark?  I definitely appreciate all of the time and effort others put in, and feel like this board may be my best hope to make a meaningful contribution as I have a pretty decent background (I have been investing in stocks since I was 14) and work as public accountant with a Big 4 firm, so I know a thing or two about financial statements.&#xD;&#xA; &#xD;&#xA;Anyways, enough with my brief introduction.  I am hoping someone can explain to me why not to buy DHOM.  I have pretty decent background in stocks, but am usually more of a long-term value investor (i.e. MO, XOM, BAC (until recently), etc.) &#xD;&#xA; &#xD;&#xA;Anyways, my thought about this company is that it pretty much blows.  Homebuilder that was not even making a great return before the housing bubble began to pop.  However, it has been hit so hard that it now has a Market Cap of $13 million.  If you check out its latest Q, its book value is considerably higher than this.&#xD;&#xA; &#xD;&#xA;Now, if this was a manufacturer, I wouldn&#x27;t place too much stock in book value.  But this is a home builder, and the majority of its assets are real estate based.  The real estate has already been written down to the lower of cost or market.  And, while the real estate market has dropped, land is land.  It will always hold a value and should eventually appreciate over time.  It is not like having an inventory full of clothes, or computer chips that are tough to sell.&#xD;&#xA; &#xD;&#xA;Why is this selling for so low?  I do my own research on stocks, but have not seen a single article, report on this one.  I&#x27;m hoping someone out here who may have a little more experience in the market can explain to me why not to buy this stock, because I usually shy away from stocks like this, but I just can&#x27;t see how this company, can really be worth $13 million when you look at its balance sheet.&#xD;&#xA; &#xD;&#xA;Thanks in advance for any help.

KOAJ · Answer

the problem with this and all other homebuilders is that they are hemmoraging cash in a very very bad housing market with tightening lending standards

click - dhom v nasdaq (a much better place to be...just buy CSCO and leave it alone for a year. you'll make 10% and wont lose a second of sleep. i come into work every day and pour through the news waiting for the first public home builder to go Chapter 11

just because a company is trading at historic lows doesnt mean its cheap

you can continue to short all homebuilders, big banks (WM, CFC, BAC), mortgage lenders, construction material suppliers (USG, etc)

wallstreetcappers · Answer

There is a liklihood that these guys cannot weather the storm with the housing downturn.

They have nearly 200M in debt and 1M in cash and most builders are cash flow negative, which means they either dilute or go under. I doubt they can secure funding in this environment and what Koaj said about them going under has to be considered.

Wake2002 · Answer

KOAJ, thank you for the reply, it is appreciated. I have most of my money in what I would consider "safer" long-term stocks, and I don't have a need for the money any time soon (I just put 20% down on a house about 6 months ago, and have the rest of my finances pretty much under control), so I am in good shape.

I was just looking for a different perspective from my own on this particular stock, and was looking to maybe make a more risky investment than normal for me (nothing huge, just a couple thousand compared to my overall portfolio of about $40K)

I still just don't understand how this particular stock could sell so low. I guess what I might not be factoring in is the chance it goes bankrupt (which is a possibility because I think they recently defaulted on their loans) but outside of that, how can a company with a real estate on their books at $325 Million (as of 6/30/07) and total liabilities of $219 million (as of 6/30/07) be selling for $13.6 million as of today?

I guess what I am hoping for is someone who may know a little bit more about this particular stock, or knows how to factor in the going concern risk when evaluating a stock that has dropped as substantially as this. Also, what are the odds that someone would swoop in, and buy the Company, dissolve it, and be left with real estate that was valued substantially higher than their purchase price?

Again, this is a little outside of my typical investment, so if I am missing something, or if you really think this particular stock (after the knowledge of its book value) is a terrible investment, let me know. I just am looking for maybe a little more detailed advice than just saying to avoid the homebuilder industry, because I know that that industry as a whole is probably not the smartest investment right now.

Wake2002 · Answer

Wallstreet,  I was typing my post as you made yours.  Thank you for your input as well.  I&#x27;m guessing that as neither you, nor KOAJ seem to think this is that great of an investment,  I might be hoping for a little too much with this stock.  I just think it was hammered, and there is some value, but the going concern issue you mentioned does worry me.&#xD;&#xA; &#xD;&#xA;If anyone else has thoughts to the contrary, please let me know, but I&#x27;m probably going to stay out unless I hear some more positive sentiments.

wallstreetcappers · Answer

There are good values in builders, you just need to find the RIGHT one..the one or two or three that survive and can hold out during this downturn.

My favorite is TOL because they have enough cash and good margins to survive and even profit during a down market.

I would also consider HOV or CTX or if you want more of a risk try WCI. I would buy WCI over this stock mainly because of the board of directors. It doesnt guarantee anything but having Ichan on the board makes me more comfortable owning a stock in a bad sector.

Stock Question - DHOM

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