Homebuilder Stocks: Look Out Below!

Investment Research Dynamics

You can lead a horse to water…Every single homebuilder stock I look has insane levels of debt.   The company in my latest report has 22x EBITDA to Cash Flow.   I had to rub  my eyes and re-calculate the numbers when I first looked at that ratio.   This is a hallucinogenic level of debt at a time when the housing market is headed south.  This company will hit the wall within two years and anyone short the stock will be able to cover close to zero.

But  ALL of these companies have record or near-record levels of debt and inventory. Their debt/inventory  as a whole is higher than it was at the housing bubble peak in 2005 – on unit volume sales that is less than one-third of the bubble peak volume.   The seasonallymanipulated adjusted, annualized sales rate for home sales being fed to us by the industry organizations and the Government are fraudulent.  Witness that fact that the Census Bureau imposed the 3rd largest seasonal adjustment on record to yesterday’s November retail sales report.   It’s all a fabrication, like most of everything else in our system.   Click to enlarge:

Shorting the homebuilders now is one of the easiest short-sell bets since the peak of the housing bubble or the internet  bubble.  The Fed is no longer buying mortgages and near-record low mortgage rates are not stimulating sales.  My research reports are unique in thei insight and detail, showing exactly why the reported GAAP numbers are misleading, if not outright fraudlent, and why these companies are in worse shape now than in 2005, the last time they crashed:    Sell-Short The Homebuilders.