HOV Investment Analysis Report & Stock Research, Hovnanian Enterprises, Inc.

Ockham's Rating/Recommendation Summary

Rating specific information requires Premium Access.
Buy Now or Learn More about Ockham's Features and Services.

HOV Revenue

As a value investing shop, we are interested in seeing how HOV's revenues measure up against past performances. One easily understandable way of doing that is to compare Price to Sales per share levels over a given time frame. Assuming it is available, Ockham prefers to look at ten years of history (for this stock there are 10 years of history available) and we weigh recent years more heavily. This allows us to find weighted average historical high and low Price to Sales ratios, which give us a better idea of the stock's current underlying value. Using this method, we have established a high range for Price to Sales of 0.53x and the low end of the range at 0.18x.

With respect to these historically rational metrics, notice that the current Price to Sales per share ratio for HOV of 0.17x is well below its normal historic Price to Sales levels. At a price of $3.55, HOV is 52% below where we would expect to see it. Clearly, this stock looks undervalued compared to historical levels, at least on a Price to Sales basis. This will positively affect our analysis because it is rare to find a stock this far below historical norms, and we would expect some price appreciation to bring this metric back towards a more normal range.

HOV Cash Earnings

HOV is not forecasted to produce positive Cash Earnings this year, based on recent performance. This is not a positive situation, as we would always prefer that a company is producing cash every year. However, it is important to recognize that not all companies or types of companies have the goal of producing positive Cash Earnings either early in their business cycle or following significant turnaround changes. When looking at HOV, we hesitate to be overly negative on the company, but it is of concern that the company is not profitable at this time. Let's face it, companies cannot remain unprofitable for very long before a change has to be made. This could mean further restructuring or corporate event such as selling assets or spinning off divisions, at any rate a company with negative cash flows is not one that often makes a great investment unless you can acquire it at an extremely depressed price.

HOV Dividends

When determining a company's future prospects for success, Ockham Research sees analysis of dividend payments as a key additional factor. Even though it isn't imperative for HOV to shell out a dividend in order to receive a positive rating, it can be helpful to further our analysis. While we do like to see companies with healthy and growing dividends, it is not appropriate for all companies, especially those focused on growth. In this regard, we regard HOV as neutral because we do not have historical data for this company's dividends. We will being incorporating this into our analysis as soon as that data is available.