Homebuilding Buy: Insiders Bet on Beazer
09/13/2016 7:00 am EST
With home ownership at the lowest levels since 1965 in this country, we have nowhere to go but up as long as economic growth continues to muddle forward, asserts Bret Jensen, editor of Investing Alley's Small Cap Gems.
Given this, I think it is prudent to add another pure-play homebuilder to the mix. Therefore, we are putting Beazer Homes (BZH) into our Small Cap Gems portfolio.
Beazer Homes has been in the industry for over 50 years, came public in 1994, and is based in Atlanta. It is a top ten builder by home closings and serves a variety of price points in myriad geographic markets.
The stock currently sells for just under $11.00 a share. The company has a market cap of approximately $350 million and an enterprise value of approximately $1.6 billion.
Beazer rode the housing boom hard in the early 2000s but got caught flat footed with a large debt load when the housing market tanked.
It has a great opportunity right now to reduce its financial leverage, decrease its interest costs, and get a better value in the market since the stock is dirt cheap on a variety of metrics.
Insiders sure seem to think that better times lay ahead for Beazer. A director just bought $485,000 worth of stock on August 8.
This follows over $500,000 worth of new stocks purchases combined by the CEO, CFO, and a director in May. Insiders also bought over $500,000 worth of stock in total in February of this year.
Over the past five years, the company’s revenues have grown some 150%. Since turning positive in the third quarter of 2012, EBITDA has grown in a consistent and steady manner.
Over the next few years, the company should benefit from an incrementally improving housing market.
Profits should be buoyed both by increasing revenues and by better margins as the company continues to pay down debt and reduce interest costs which should be a very powerful story in the years ahead.
Insiders seem to be signaling better times lay ahead, and based on recent results I believe they are right that at current values, Beazer makes an attractive risk/reward play to ride the improving housing market.
By Bret Jensen, Editor of Investing Alley's Small Cap Gems