Player Avatar TheGarcipian (60.36) Submitted: 3/19/2008 12:28:18 AM : Underperform Start Price: $22.04 CTX.DL Score: +19.00

Having continued its downward 2-year slide, Centex still looks to me like raw egg waiting to be fried. Purely from a timing perspective, Centex is the wrong place at the wrong time. It markets its houses to first-time home buyers and those middle-class families wanting to "move up" the housing ladder. The queue for either clientèle has been shrinking and will continue to do so for who-knows-how-long, probably at least through 2009. Looking at its financials on Yahoo! Finance, I see the company is already in trouble: Profit and Operating Margins of -15.9% and -0.3%, respectively; Quarterly Revenue Growth of -30%; negative RoA (-0.1%or -16%, depending on who you believe: Yahoo! or TMF) and negative RoE (-44%); and a high Debt/Equity ratio of 131%. On the plus side, it has a very high short ratio (almost 20%), which means that if CTX bumps up a bit, the shorts may close their position in a hurry, pushing the stock even higher. But I don't think that's going to happen, at least not with a continued vengeance. CTX's book value ($26.15) is greater than its stock price ($22.27), which means the value of the homes they've built but not sold yet is what's holding the stock price up and that its services are valued at nada, zilch. The recession that we are just starting into will more than likely push home sales down (and thus home values down), making it even harder for financially-shaky companies like Centex to break-even. I think they've forgotten about trying to make a profit; they're just trying to stay alive for another 6-12 months. Indeed, their Enterprise Value/EBITDA ratio is very high at 202, meaning that a suitor would have to pay a very high price for very little earnings. And those earnings eggs are all wrapped up in one single basket, a basket that is caught in a vice grip. Expect more eggs to be broken before any omelettes come out of this mess.
Thanks to Gtrinvestor for pointing this one out to me.

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