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Hovnanian (HOV) Is Today's Dead Cat Bounce Stock

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Hovnanian ( HOV) as a "dead cat bounce" (down big yesterday but up big today) candidate. In addition to specific proprietary factors, Trade-Ideas identified Hovnanian as such a stock due to the following factors:

  • HOV has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $32.7 million.
  • HOV has traded 1.4 million shares today.
  • HOV is up 3.1% today.
  • HOV was down 5.2% yesterday.

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More details on HOV:

Hovnanian Enterprises, Inc. designs, constructs, markets, and sells residential homes in the United States. It constructs single-family detached homes, attached townhomes and condominiums, urban infill, and active adult homes. HOV has a PE ratio of 29.1. Currently there is 1 analyst that rates Hovnanian a buy, 1 analyst rates it a sell, and 3 rate it a hold.

The average volume for Hovnanian has been 4.2 million shares per day over the past 30 days. Hovnanian has a market cap of $795.9 million and is part of the industrial goods sector and materials & construction industry. The stock has a beta of 2.23 and a short float of 18% with 3.85 days to cover. Shares are down 8.5% year-to-date as of the close of trading on Tuesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Hovnanian as a hold. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income and robust revenue growth. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself and poor profit margins.

Highlights from the ratings report include:

  • HOVNANIAN ENTRPRS INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, HOVNANIAN ENTRPRS INC turned its bottom line around by earning $0.20 versus -$0.49 in the prior year. This year, the market expects an improvement in earnings ($0.48 versus $0.20).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Household Durables industry. The net income increased by 138.9% when compared to the same quarter one year prior, rising from -$84.41 million to $32.82 million.
  • The gross profit margin for HOVNANIAN ENTRPRS INC is rather low; currently it is at 22.43%. Regardless of HOV's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, HOV's net profit margin of 5.54% compares favorably to the industry average.
  • In its most recent trading session, HOV has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.

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