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Welcome to the Equities Section of Options Realm |
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Today (2/22/2007) I am writing to you about BLDR. The reason why I chose today to discuss BLDR is the earnings report that came from Toll Brothers. The earning report that came out from TOL on this latest quarter just verifies what many have been saying for the past couple of months. It appears that the housing downturn has continued and is really starting to affect the home builders. With news like this one would think that anything related to the housing market would be avoided at all costs. I however feel differently about the matter. I think that this latest drop in the housing market presents a great opportunity to find great companies for attractive prices. This is where BLDR comes into play. I have held a position in this stock twice over the past year. Both times I made money with my positions and both times the stock has risen after bad news was announced. I have been told that when a stock rallies off of bad news then this is a great indicator that the stock is undervalued. While this may not be always true it is intriguing to look at why a stock would rally when bad news comes out. In the case of BLDR bad news has always just furthered the view that the company if very well run and the problems are only short-term. It is this point that I would like to expand on and lead into why I think that BLDR is a company that you will want to own going into the future. The company from a fundamental standpoint is one that is very interesting. The company is doing everything right in order to expand and be more profitable. The problem? The housing market is in a downturn right now. This is important because when valuing a company growth is a very important indicator when factoring in DCF models. With a bad market it is almost impossible for the company to have growth in its free cash flow. This really drastically effects the target prices that a DCF model will spit out. So what do we look at when the DCF target is lower for reasons the company cant control? It is at this point that the investor should look at what the company is doing to expand in the field that they are in. In BLDR’s case the company is growing its share of the housing supply market and is doing it in an efficient matter. BLDR is a great company in a sector that has cooled off. That leads me to my next question. If BLDR is a good company what is the sector going to do? I feel that in this case the sector will eventually turn around. Housing is something that people will have a continual need for as time goes on. I think that the downturn the housing sector is feeling will not be a permanent thing and for this reason I feel that this will present an opportunity to get a great company on the cheap. |
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