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Common stock of Orleans Home Builder (OHB) trades significantly below the book value and in a still hot industry with north of 75% insider ownership. Average analyst expectation is 15% growth rate. Even if I apply a nominal 10% growth the company is expected to double from its current $19 a stub.
Am I looking at a value opportunity here?
Did anyone look into this before and care to share a comment?
Lalsa
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Hi Rajesh,

Orleans Home Builder (OHB) trades significantly below the book value

Where are you getting your information that says that? According to yahoo finance, on this page: http://finance.yahoo.com/q/ks?s=OHB it looks as though it trades at 1.38 times its book value. Looking at Yahoo's representation of its balance sheet (see http://finance.yahoo.com/q/bs?s=OHB ), it has $283,857,000 in shareholders' equity on the books, of which $20,514,000 is "goodwill" and $4,111,000 is "other intangibles".

By my estimations, that leaves $259,252,000 in book value, excluding good will and other intangibles. With a market cap of about $351,200,000 (see again http://finance.yahoo.com/q/ks?s=OHB ), that gives it a price to book (excluding intangibles) of about 1.35 -- consistent with Yahoo's calculation.

Additionally, look at the "enterprise value" of the company (same page as above). That number is reported at about $850 million. Enterprise value is market price plus net debt. That its enterprise value is so much higer than its market cap indicates that the business is highly leveraged, which is typical for a homebuilder. In a rising market for its products, that's not a problem, but homebuilders are notoriously cyclical. Interest rates in general are rising, and home prices nationally are not climbing as dramatically as they have been in recent past years -- in some parts of the country, they've actually begun retreating. Neither one of those signs is a good signal for a heavily leveraged homebuilder.

Hope this helps provide some perspective.

Regards,
-Chuck
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Thanks Chuck. I must have looked at the PEG and misread it as Book value.

I have always understood that EV is some value a potential buyer would pay for a company and figured a marketcap less than EV somewhat indicates the company is undervalued.

Thanks for the clarification.
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