Is This Stock About to Lose Half Its Value?

When David Einhorn speaks, you listen!

Sean Williams
Sean Williams
Nov 19, 2010 at 12:00AM

If you've been holding St. Joe (NYSE: JOE) over the last five years, chances are you've had enough disappointments to last a lifetime. Over that span, the stock lost more than 70% of its value, as the economic downturn reaped a heavy toll on the Florida real estate market.

Imagine the head-scratching that will ensue when I propose that St. Joe could have another 50% to fall before it's priced attractively. Before you go plastering my likeness on your dartboard, let's look at the facts.

A history of losses
If St. Joe didn't have such large land holdings on the Florida coastline, coupled with its strong cash position, I'd have surmised from its financials that it was spiraling toward bankruptcy. In each year since 2005, revenue has dramatically decreased, and large profits have turned into sizeable losses. In 2005, St. Joe produced more than $700 million in revenue. In 2010, analyst estimates call for only $86 million.

Iconic battle royale
Even more interesting is the battle brewing over St. Joe between two iconic fund managers, David Einhorn of Greenlight Capital and Bruce Berkowitz of Fairholme Capital Management.

Berkowitz argues that the lack of available land in Florida makes St. Joe a bargain. Einhorn retorts that most of St. Joe's properties aren't marked to market prices, and their communities are relatively empty.

Although both have solid arguments, I'm inclined to agree with Einhorn. His presentation highlighted the likely idea that a majority of St. Joe's coastal properties are sold, leaving only the tougher-to-sell inland properties. I feel the company's declining revenue figures provide solid evidence of this.

On top of this, Florida home prices have experienced one of the largest corrections in the country. With the housing market glutted with foreclosures, I can't see it rebounding anytime soon. This should continue to translate into asset markdowns for St. Joe as it's forced to revalue its resort and land portfolio.

Comparative disadvantage
Even if you felt like taking a chance on a bottom in the Florida housing market, consider this -- direct competitor Avatar Holdings (Nasdaq: AVTR) has nearly $9 in net cash per share, while Consolidated-Tomoka Land (AMEX: CTO) has positive trailing EBIDTA. In other words, why would you buy St. Joe when you could just as easily own a company with more cash on hand, or one closer to profitability?

Bruce Berkowitz made it clear that his purchase is for the long term, but he'd better hope the Florida housing market finds traction soon. Otherwise, St. Joe may continue its slide straight into the single digits.

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