Attention, homebuilding-sector investors! Are your seat belts fastened? They'd better be.
This month brings us the latest tales of woe from Ryland
Stanley reported a 26% decline in third-quarter sales yesterday, and a $0.50 swing from last year's profit of $0.16 to this year's loss ($0.34). Granted, $0.27 of the loss came in the form of a restructuring charge. Still, restructuring wouldn't have been necessary if the housing market weren't such a mess.
Indicative of the state of affairs, CEO Albert Prillaman advised that "order rates over the last ten days have deteriorated significantly."
But as they say, context is everything. To put that statement in context, the past 10 days have been ... well, worrisome for a lot of homeowners. Considering that the Dow just finished suffering its worst week ever, I'm not surprised to hear there's been something of a falloff in the numbers of people shopping for new dining sets. Interior decorating, I suspect, is not foremost in most folks' minds right now.
But here's what you need to keep in mind, Stanley investors: Things will get better. (They can hardly get worse, right?) And the longer I watch Stanley manage the crisis, the more impressed I become with this company's staying power. Through the past three quarters of the worst housing crisis I've seen in my lifetime, Stanley has remained cash-profitable and generated $8.1 million in free cash flow. Annualize that figure, and the company is currently selling for less than 10 times its trailing cash profits, which I dare say is a price we will one day look back on and declare "cheap." Just as soon as we, you know, get this end of the world thing behind us.
That's not to say it will be easy waiting for that future.
Look at how long we've waited already: