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Nailing Down A Gain With A Home Builder.(THE SMART INVESTOR)(WINNING WAYS)
Byline: KEN HOOVER
Not every stock breaking out of a base in a bull market is a big winner, running up five- or 10-fold. Many times, even the best investor will reap only a moderate profit on many of his trades. Take them when you can get them.
One example was Hovnanian Enterprises, which broke out last fall and made a 31% gain in 10 weeks before rolling over.
Red Bank, N.J., home builder Hovnanian had impressive fundamentals. In the four quarters prior to its blastoff, earnings rose 124%, 125%, 100% and 48%. And the earnings per share numbers were nothing to sneeze at. For example, in the quarter before the breakout, earnings rose to $1.26 a share vs. 81 cents a year ago. That's a lot more significant than going from a penny to 2 cents.
Sales were up 38%, 57%, 40% and 16%. The five-year growth rate was 42%. The Earnings Per Share Rating was 99. The Relative Strength Rating was 83. The Accumulation/Distribution Rating was A.
Mutual funds owned 28% of the company. The Building-Residential/Commercial industry group was rated 52nd out of 197 tracked by IBD.
Hovnanian's P-E ratio was only 10, astonishingly low for a company growing that fast. The company was being bought by value investors.
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