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1-Star Stocks Poised to Plunge: Ryland Group

By Brian D. Pacampara, CFA - Updated Apr 5, 2017 at 7:52PM

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Market-lagging returns could be written in this one-star stock.

Based on the aggregated intelligence of 125,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, homebuilder Ryland (NYSE:RYL) has received the dreaded one-star ranking. Our data has shown that one-star stocks woefully lag the market average; conversely, five-star stocks outperform the S&P by a significant margin.

With that in mind, let's take a closer look at Ryland's business, and see what CAPS investors are saying about the stock right now.

Ryland facts

Headquarters

Calabasas, Calif. (1967)

Market Cap

$714.35 million

Industry

Residential construction

TTM Revenue

$2.29 billion

Management

CEO R. Chad Dreier (since 1993)
COO Larry Nicholson (since 2007)

Return on Equity (average over the last five years and TTM)

9.7% and (51%)

Competitors

Centex (NYSE:CTX)
KB Home (NYSE:KBH)

CAPS members bearish on RYL also bearish on

Pulte Homes (NYSE:PHM)
Toll Brothers (NYSE:TOL)

CAPS members bullish on RYL also bullish on

Bank of America (NYSE:BAC)
Citigroup (NYSE:C)

Sources: Capital IQ (a division of Standard & Poor's), and Motley Fool CAPS. TTM = trailing 12 months.

Over on CAPS, 221 of the 262 All-Star members who have rated Ryland -- or 84% -- believe the stock will underperform the S&P 500 going forward. These Fools include TheGarcipian and dexion10, both of whom are ranked in the top 5% of our community.

Last month, TheGarcipian let the bearish stats speak for themselves: "Losses are piling up, and little new building is being done. Profit margins are at -21.3%, operating margin is barely above water at 3% as is Return on Assets at 1.8%, while Return on Equity is a blistering -47.2% in the most recent quarter."

In a pitch from last week, dexion10 shares that bearishness, listing 10 great reasons why Fools should run from Ryland. Below are the first five, but be sure to check out Nos. 6 through 10, too:

  1. Ryland has used aggressive accounting to value its book of raw land and will have further write downs as time goes on.
  2. RYL is trading above its "inflated" book value.
  3. Ryland also has significant leverage $700M+.... this limits there ability to buy distressed land and lower their cost basis.
  4. RYL will not be a profitable as new builders / legacy builders buying distressed land.
  5. National builders are all crowding the same second tier markets to replace the decline in demand in formerly "hot markets."

What do you think about Ryland, or any other stock for that matter? Make your voice heard on Motley Fool CAPS today. CAPS is 100% free, so simply click here to get started.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Bank of America is a Motley Fool Income Investor pick. The Fool's disclosure policy always gets a perfect score.

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Stocks Mentioned

Citigroup Inc. Stock Quote
Citigroup Inc.
C
$53.90 (3.48%) $1.81
Bank of America Corporation Stock Quote
Bank of America Corporation
BAC
$35.27 (3.96%) $1.34
Toll Brothers, Inc. Stock Quote
Toll Brothers, Inc.
TOL
$49.26 (4.21%) $1.99
PulteGroup, Inc. Stock Quote
PulteGroup, Inc.
PHM
$43.99 (4.29%) $1.81
KB Home Stock Quote
KB Home
KBH
$32.75 (4.30%) $1.35

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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