Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of homebuilder Standard Pacific (UNKNOWN:SPF.DL) were rocked off their foundation last Friday, falling as much as 14% after reporting disappointing third-quarter results.
So what: For the quarter, Standard Pacific reported net income of $0.05 as new net orders rose 29% and backlog jumped 64%. More importantly, homebuilding margins improved to 18.8% (excluding impairment charges) and average home selling prices jumped a healthy 7% to $369,000. Despite this improvement, Standard Pacific still missed Wall Street's EPS estimates by $0.03, and revenue of $318.5 million was well short of the $385 million consensus figure.
Now what: I have to admit that Standard Pacific's report wasn't nearly as horrible as I expected, but there's a clear bifurcation between good and bad homebuilders that many investors are missing. I'm not a fan of the homebuilding sector, period, but Lennar's (NYSE:LEN) sector-leading homebuilding margin of 23.2% is unsurpassed and places it atop its peers. On the other hand, its peers Hovnanian (NYSE:HOV) and Beazer Homes (NYSE:BZH) are projected to lose money well into 2014. Standard Pacific, though profitable, aligns more closely with the latter group mainly because of its heavy debt burden. Even following today's drop, Standard Pacific's forward P/E of 23 is far too much to pay for a company with a lot of exposure in markets that appear to be solely driven by price and not actual housing demand. That's not a game I want to take a chance on playing.
Craving more input? Start by adding Standard Pacific to your free and personalized watchlist so you can keep up on the latest news with the company.
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.