Beazer Homes USA, Inc.

Though this company is in turmoil and is an extremely high risk investment, it may still be suitable and could potentially give very good gains over the next few years. Let’s look at some of the fundamentals as this is now a pure Ben Graham pick (Net Current Asset Value).

The company clearly does not pass the defensive investor requirements, as it does not have sufficient market capitalization, current positive income, or dividend payments for over 10 years prior. However, it does look fairly acceptable to the enterprising investor. The current ratio is strong, there is low debt to net current assets, it currently pays a dividend, and the price is far less than 150% of the net tangible assets. The only downside is the current negative earnings, but over the long term that is likely to correct itself.

What’s more important is the value. The price is currently about 9.17 per share. But if we look at the balance sheet, we see a low amount of debt (sure the cash flow is limited for them currently and they are having trouble paying the debt due to inventory sales issues, but keep with me) relative to the current assets. Take a look at their latest quarterly balance sheet:

In millions of USD	3-31-2007
Cash and Equivalents	218.84
Receivables	66.09
Inventory	3371.58
Total Current Assets	3656.51
Total Debt, Current and Long Term	1762.47
Total Outstanding shares	39.1

Doing a calculation of Net Current Asset Value (NCAV = total current assets – total debt), we get a value per share of $48.44.

The counter argument is that the inventory figure is in question because of the home sales market. So let’s take that inventory value down to 75% of what it is on the books. In other words, assume the company can only sell the inventory at 75% of what they expect. If you do the calculation that way, it still comes out to a value of $26.88 per share.

From another angle, that means a third party could buy the company for $9.17 per share today, sell the inventory for 75%, take the cash and pay of ALL of the company’s debt, and still have a profit of $17.71 per share. That’s outrageous!

Keeping in mind the risk of the situation (the company is struggling to stay afloat and away from bankruptcy as they don’t have cash to pay their debts), this may be a good long term investment for someone who can eat the loss if the company does declare.

Please take a moment to read our disclaimer. We are not advocating investment decisions and only are providing a commentary on market activities. Each investor should do their own research prior to making any investment decision.