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This board is really quiet. But if anyone is watching, I noticed that HOV has done really well over the last couple of years as a stock. It's also got a good rating in IBD.

So I took a look at the financials.

What I see in the last two 10Ks is a negative cash flow from operating activities. For year ended 10/31/03 it was ($192,364) and for year ended 10/31/04 it was ($188,149).

That's not good is it???

Maybe I'll cross-post this on another board. HOV has positive cash flow from financing activities.

Wish I knew more about cash flow.

Andy
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What I see in the last two 10Ks is a negative cash flow from operating activities.

I, too, read the IBD article, looked up the financials, and noticed the negative cash flow from operations. It turned me off, too. I planned to check some other home builders to see if it is a common thread or if it is something particular to HOV, but I have not done that yet.

If the cash from operations is negative, it probably means that you're not managing your receivables. You're giving out good terms for sale, but your bills are coming due before your cash is coming in. The result is that you suck cash from your business, or you take out an operating loan, or both.

As for HOV, Iliked the IBD article and their general business strategy. They had a load of back-log and properties, which seems good in their business. But for the moment the negative cash flow bothers me.

dcanfiel

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I, too, read the IBD article

I hadn't seen an article. I was just referring to the IBD ratings. HOV shows up on the IBD 100 and has an overall rating of 99 or something like that.

Was there an article? And if so, could you tell me the date it appeared?

Like you, I'm turned off by the negative cash flow. But the stock has done well over the last two years. I wonder why?

Andy
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Was there an article? And if so, could you tell me the date it appeared?

It appeared in the 01/21/05 issue. Better yet, read it on Yahoo!

http://biz.yahoo.com/ibd/050120/newamer_1.html

The nation's ninth largest builder, Hovnanian Enterprises (NYSE:HOV - News), has seen housing orders rise 35% the past few years -- in part because it's grabbing business from smaller rivals.

And, strangley, this:

Hovnanian's cash flow and balance sheet give it the prowess to do that. It posted $4.2 million in sales for fiscal 2004, which ended in October. That was up 30% from the prior year. Earnings gained 36% to $5.35 a share.

Cash could be spent on land, but I'm not sure how this would ring into the operations cash flow.

dcanfiel
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Thanks for the link to the article. It's hard to tell if the writer knows what he's talking about. I've found that when journalists use numbers, they often reach the wrong conclusions.

Hovnanian's cash flow and balance sheet give it the prowess to do that. It posted $4.2 million in sales for fiscal 2004, which ended in October.

For starters, it's $4.2 BILLION not million. Shucks, $4.2 million would only be 8 houses in California. ;-)

Then, if you scroll down to the bottom of the article, for homes delivered, the jump from '03 to '04 was 25%. The estimate from '04 to '05 is only 7%.

The other chart, U.S. Housing Starts, it shows an expected decrease for 2005. And, of course, interest rates are headed up.

From the article: "Despite concerns that big home builders are due to hit a wall at some point, Sorsby sounds optimistic about the future.

"I think we'll see three, four or five years of very smooth sailing for home builders," Sorsby said.


That does it for me! If analysts are saying that everything is fine, we're all in trouble. ;-) Looking at those charts, I'd say maybe ONE year of smooth sailing before they hit the wall.

Too many negatives that I don't understand. I had considered buying into HOV but I think I'll pass.

Nice chatting with you. And by the way, we should meet here in one year to see where HOV is. And if we were totally off base. ;-)

Andy
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Too many negatives that I don't understand. I had considered buying into HOV but I think I'll pass.

Ditto. The negative cash flow turned me off from the start, and after that I found other things in other places to look into. The one-year meeting is a date.

dcanfiel
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OK, so it's been a year.

On 2/10/2005, HOV was at $56.50

On 2/10/2006, HOV is at $44.62

Looks like it peaked at $70-something in July.

I think that avoiding it was a good idea. The run up between February and July was probably just momentum. I think that as the housing “bubble” deflates, HOV will continue to go down.

I'm still not sure about the cash flow stuff. I noticed that other companies like CAT have funny cash flows which also probably includes the company financing their customers.

I'm sure that HOV is a fine company but housing is on the wane. And, by the way, I don't think there's a bubble that's going to burst; just an inflated something that's going to deflate.

I think that real estate will have more days on the market and will sell for a bit less than the asking price as opposed to the rapid turnover and price premiums we've seen lately.

Meanwhile, recently, I've bought some MOT and GILD. MOT makes cell phones and GILD makes drugs for all sorts of nasty things like HIV and Hepatitus B or C.

Andy

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OK, so it's been a year.

On 2/10/2005, HOV was at $56.50

On 2/10/2006, HOV is at $44.62

Looks like it peaked at $70-something in July.


Yes, I was just noticing that it had been a year and you beat me to the punch. Haven't looked at their statements but you get to the crux of the situation with the stock price. I agree it was a good one to avoid, and the negative cash flow is what drove us both away. I don't mind the negative cash flow so much as the lack of an explanation for it.

CAT flowie does indeed move all around from as high as 10% to as low as 0% of below. And it appears to be seasonal somewhat, though I have to admit I haven't checked on it in some time. I suspect with CAT it has to do with their financing deals somehow.

As for HOV and the housing market, I agree with you again. I think the "burst" is largely overstated, but I wouldn't be surprised to see a growth decline. As long as the supply of houses is lower than the demand, prices will hold or go up. In California especially, due to regulations, supply has very little chance of ever meeting demand even as people leave the state for greener pastures.

So how about we meet here in yet another year to see how our rejected baby is doing?

dcanfiel
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So how about we meet here in yet another year to see how our rejected baby is doing?


Sounds like a good idea.

And it won't be long. I can't believe how fast a year goes by. Dang!

Also, have you noticed how many posts there have been in the last year on this board? Pretty slow.

Andy
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Hey, it's time for our yearly check-in!

http://quote.fool.com/chart.aspx?s=HOV&q=l&l=off&t=2y

Not sure about the cash flow at the moment, but the price has certainly gone down in the two years since the IBD article. Two years ago it was around $60, then went to $70 for a brief time, now down around $35. It's only a two year interval, but I think my initial thought about negative cash flow indicating a no-invest was correct.

I'll be back next year.

dcanfiel
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Hey, it's time for our yearly check-in!


So it is!

I agree with you. HOV or any of the others are NOT a good investment right now. This stuff is cyclic and will probably be a few years until housing gets hot again.

They had a good run if you knew when to get in and when to get out.

Until next year.

Andy
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