NovaStar: Are the Shorts Right For the Wrong Reason?

With NovaStar (NFI), you could say the shorts appear to be right for the wrong reason.

Subprime-related issues were always only part of the story, not the whole story or even the major part of the story. Instead, this was a company popular with shorts largely because of earnings quality and accounting issues.

There have also been simmering IRS issues. And while New Century (NEW) has garnered attention among subprimers for receiving a knock-at-the-door from the SEC, NovaStar was leading the pack with an "informal inquiry" from the SEC as far back as 2004.

The company has disclosed that inquiry in every quarterly and annual filing since; it disappeared in its recently filed 10-K. The company declined comment, citing its past relationship with me. "The 10-K speaks for itself," a spokesman said.

A bigger issue, of course, is whether it will have the cash to pay the $5.60 dividend for last year and the $4 expected this year. If it does, the bigger question -- if its stock stays at these levels, and as I've mentioned here previously -- is what happens post payout, since the stock falls by the price of the payout. At last check, NovaStar was trading at $3.55.

NFI 1-yr chart:

Comments

[Christopher Laudani]

Hey Herb,

There's no footnote by your performance numbers that says, "Stock went down for the wrong reason"! It went down. That's all that matters! It's all good. (except for the employees...)

[anovero]

herb, nice follow up on NFI, and the fact that you called that a few years ago. now tell us all about ACAS...