D.R. Horton

America's largest homebuilder is currently in a slump along with the rest of the homebuilders (i.e., KB Home, Pulte, MDC, etc.)

http://finance.yahoo.com/q/ta?s=DHI&t=my&l=on&z=m&q=l&p=&a=&c=

They have a strong balance sheet, good name and product branding, and operate in vast geographically dispersed locations.  They have significant competitive advantage as well as an economic moat.  

Their current Price to Sales and Price to Book

Price/Sales (ttm): 0.48
Price/Book (mrq): 1.19

For the contrarian investor this is the time to start loading your portfolio with home builders - while the market has beaten them down. They haven't bottomed yet but its better to begin acquiring shares just before bottom and while they are nearing bottom, than to miss the upswing when it gets going again.  Their 52 week high was well over $50/share with 6 splits since they began operating:

Splits
18-Sep-95 [7:5]
14-Sep-00 [109:100]
07-Mar-01 [111:100]
10-Apr-02 [3:2]
13-Jan-04 [3:2]
17-Mar-05 [4:3]

They have a 4 to 1 current ratio, $7.6B in working capital, and can pay off their long term debt ($4.9B) easily.  

View the spreadsheet for last three years for a better perspective

While the market is down for large home builders they are certainly not going to disappear.

http://biz.yahoo.com/e/060808/dhi10-q.html

PS: Using Ben Graham's "Intelligent Investor" guidelines, for valuation, this stock would be as close to an undervalued stock price as one could get.  BTW Ben Graham and Warren Buffet both studied in the same University and also opened their first managed fund together.

Disclosure: I do own shares in DHI and I'm continuing to purchase more.

- Bill

Here's one of the best reasons to perform a fundamental analysis of the financial statements for any company.  In this particular case the following results were generated for DHI:

CAGR Dividends Per Share (1997-2005): 26.3%
CAGR Earnings Per Share (1996-2005): 23.5%
Average Return on Invested Capital (ROC) (2003-2005): 27%
Average Return on Invested Capital (ROC) (1995-1997): 13%
Average Earnings Yield (EY)(2003-2005): 16%
Average Earnings Yield (EY)(1995-1997): 8%
Current Ratio as of EOY 2005: 4.72 to 1
Current Assets remaining after Long-Term debt payoff:  $2,685,400,000

Note: CAGR = Compound Annual Growth Rate


Attached is the spreadsheet I used to analyze DR Horton.  I also attached the 2005, 2004, 2003, 1997, 1996, & 1995 Annual Reports where I gathered the values for the analysis.

It took me approximately 4 hours to do the analysis.  With any investment - isn't it worth it to AVOID LOSING MONEY for only a few hours of work.  If you invested $1,000 in 1995 here's what you would have today:

$1,000 Invested Jan 1, 1995 would have purchased 101 shares at 9.88/sh

Splits:

18-Sep-95 [7:5]
14-Sep-00 [109:100]
07-Mar-01 [111:100]
10-Apr-02 [3:2]
13-Jan-04 [3:2]
17-Mar-05 [4:3]

On Sep 18, 1995 you would have received 7 shares for every 5 shares you owned. You would now have 141.5 shares at 11.13/sh or holdings worth $1,573.78

On Sep 14, 2000 you would have received 109 shares for every 100 shares you owned. You would now have 154.235 shares at 18.50/sh or holdings worth $2,853.35

On Mar 7, 2001 you would have received 111 shares for every 100 shares you owned. You would now have 171.20085 shares at 24.22/sh or holdings worth $4,146.48

On Apr 10, 2002 you would have received 3 shares for every 2 shares you owned. You would now have 256.801275 shares at 24.52/sh or holdings worth $6,296.77

On Jan 13, 2004 you would have received 3 shares for every 2 shares you owned. You would now have 385.20 shares at 31.79/sh or holdings worth $12,245.57

On Mar 17, 2005 you would have received 4 shares for every 3 shares you owned. You would now have 513.6 shares at 30.50/sh or holdings worth $15,664.80

So the CAGR = ($15,664.80/$1,000)^(1/N) - 1 = Where N is the Number of years held in this case 10 years = 31.67% Annually and that doesn't even include the dividends!

To use the html txxt files after download rename the extension from .txt to .html then just double click on them.

Use the spreadsheet to evaluate all of the companies in which you plan to invest!

- Bill

While DHI's stock, as well as other homebuilder stocks LEN, PLH, KBH, TOL, MDC, etc, have been batter down by poor economic news now is the time to take the contrarian perspective.

I bought in at $23.39 and I consider the price now an even better bargain.  As long as it continues to go down having such a significant good history of profitability I'm a buyer.  I thought it had bottomed but it may still go lower...but watch out there are some big institutional investors already buying in.  Some say it has hit bottom and inventories are just about cleared out while others tend to be more pessimistic thinking now is not the time to be buying home builders.

One thing's for sure - the market is efficient and and consumers will begin building again - especially baby boomers wanting to move to upscale and appointed homes.

Now is not the time to back away.  Look at my analysis of the fundamentals and see if you agree as well.

- Bill