Wednesday, December 5, 2007

Homebuilder Ratio Analysis

In September, I put together a ranking of public homebuilders by their debt to backlog, enterprise value to market cap, debt to market cap, and Altman Z-Score ratios.

I am going to update that ranking, but first I wanted to measure its efficacy at predicting changes in stock prices.

This is a scatter plot of the relationship between the debt to market cap ratio on September 18, and the decline in price since then.

Similar scatter plot showing the relationship between price decline and debt to backlog ratio.


Anonymous said...

Does it mean NOV and TOL are still the best candidates to short with little risk, if missed boat on TOA.

Credit bubble your thoughts !!

CP said...

First, wait until I post the follow-up chart later today. I have an update of the debt/backlog and debt/cap ratios.

Second, the one thing that these charts don't show is: to what extent are these ratios already reflected in the price.

Personally, I am short SPF, BZH, and HOV.