JMP takes a look at Hovnanian stock -- and sees a tear-down. Image source: Getty Images.

What happened

Shares of homebuilder Hovnanian Enterprises (HOV -3.05%) dropped more than 11% in early Thursday trading, before rebounding to a recent loss of only 8.5% as of 12:30 p.m. EST.

So what

For this, you can blame the not-so-friendly analysts at JMP Securities, which this morning pulled their already underwhelming market perform rating from Hovnanian stock, and downgraded the shares to market underperform (aka "sell"). As detailed in a write-up on this morning, JMP observes that Hovnanian shares have spiked 66% over the last 90 days -- a time period that has seen the broader S&P 500 rise just 6%.

JMP believes that this huge surge in stock price is "overdone" -- the more so because "1H17 has extremely difficult community count comps, leading us to believe management's 2018 guidance of a recovery toward 2016 delivery levels is too optimistic." Five years after the housing market pulled itself out of a ditch, Hovnanian still isn't earning profits. Moreover, most analysts quoted on S&P Global Market Intelligence expect to see Hovnanian's losses increase over the next five years.

JMP also highlights Hovnanian's "cumbersome debt load and land banking arrangements as a material negative."

Now what

Between the balance sheet risk and likely losses on the income statement, JMP argues that Hovnanian should be valued at best at "8.0x our 2018 EPS estimate versus [its peers' valuation of] approximately 9.5x." JMP estimates that 2018 earnings will be in the neighborhood of $0.20 per share (which is in line with other analysts' expectations) and thus assigns Hovnanian stock a price target of just $1.60.

Given that that price target is 36% below the price of Hovnanian stock even after today's sell-off, today's selling could be only the beginning.