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Strategies & Market Trends : Z Best Place to Talk Stocks
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To: Ron McKinnon who wrote (49731)11/7/2003 11:40:58 AM
From: Ron McKinnon  Read Replies (2) of 53068
 
a few brief comments on my new obsession OBH

this is a real nice mid sized homebuilder which like all the others is seeing big gains in earnings

so why am I shorting it?

for the last year earnings were up big but the number of homes sold actually declined
they shifted from lower priced homes + condos to bigger homes

eps was 2.18 but fully dilluted was 1.65
so a P/E of about 21 trailing
this is way over the industry avg of about 10x's
NVR 11
TOL 12
BZH 8
RYL 11
LEN 11
etc.

insiders have not been selling much but here is the BIG BUT

shares outstanding are 12mm
but the float is only 2mm
this is the main reason for the huge run in price imo

just 2 yesrs ago the stock was at about 3
so the insiders holding 10mm shares had a worth of say $20,000,000
at $35 yesterday that had grown to $350,000,000
in just a month they have paper gains of $150mm
the Chairman alone owns 7mm shares

a few years ago he loaned the company $5mm which is in convertable preferred and debt
he could waive the $5mm payment and instead take 3,333,000 shares at $1.50
so on that alone he would have a $100mm gain

I could post a lot more but I think that hits the keys
the bet is that with it at a P/E doublt the industry the insiders just might like to take some gains off the table?
if the CEO only sold 10% of his holdings he would gain $30mm but that would increase the float by 50%

interesting huh?

I was so focused on adding shorts and a few other trades at the open that I missed the 2 minute tank from 34 to 29
now that it has snapped back I have added some more short and will now start to swing cover some while holding most
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