Abe Mishima

What's Book Value Worth for Homebuilders?

P/B is meaningless. Cash flow is far more important. The burn rate and projected time to reverse negative net income are the critical numbers to get an estimate on. The longer the recovery takes, the more likely we are to see credit downgrades and possible bankruptcy. In BK, the common shareholder would probably get nothing. If just one of the major homebuilders has to file for BK, it will take all homebuilders down. Even if no builder goes belly up, the time to straighten out the balance sheet keeps growing longer and longer. Thus a 2:1 to 4:1 drop in the stock price relative to the 52-week high is not only a reality, but a deserved decline in the pps of these stocks.