It has reached what I consider to be fair value. That fair value has been going down due to the longer than expected (by me) recovery in housing. Since 2007 up until now the fair value of the company has relentlessly gone down due to the years of accumulated losses. But what matters is the price and when I saw it going down last year in August I loaded on stocks and options at what I thought was a big discount. That discount is not present anymore in my opinion. I see this as a high risk company, that is why I only bought it cheap when it was on sale. If recovery takes a bit too long it could need more capital, and that would affect the share price for sure, or it even could, in worse case, go bankrupt.
@ 17.5 it is more than fairly valued in my view, if new home sales recover to the historical average and USG has a gross profit of 600 millions, like it had in 2007, not too conservative assumption, but ok, lets assume that, and take out 300 in SG&A and 200 in interest service then 100 millions remain as profit, divided by 135 million shares (considering Buffett’s + Watsa’s convertibles) you get an eps of less than 1. The stock is more than 17 times that now, and sales have yet to recover…. that doesn’t look cheap to me anymore…. even dangerous to hold… so I sold out.
The problem is that USG has massively diluted its share base and its profits are severely reduced by the much bigger debt interest that in the past. Given the substantially bigger amount of shares, in order to have an eps as it had before in the golden, or should I say bubbly, construction years of 2005-2006 it would have to have much bigger net profits than in the past.
Anyways I’m very happy with the results this company has provided me. With the stocks I made a 30% profit on 340 shares bought in the weeks around August 2011 for an average of 11.59 and sold them mainly now and in the last weeks for a 1167 dollar profit.
With options it was better : 165% profit on 5 strike 2013 Jan calls, bought for 1660 at an average of 3.32 each and sold for a 2734.82 dollars profit when they multiplied by to 2.5 times its original price.
Overall a relatively small investment of 5602 US dollars, due to the risk, but a relatively nice 3901.97 profit equivaling to 70% in 7 months.
Not bad considering that this is the 3rd time I make money with USG, the 1st was in selling in 2010 calls that I bought in 2009 at extremely low prices that basically multiplied by 9 or 10 when I sold, that was a much higher profit with more, but by not much, investment than now. Also funny to note that this has provided me one of the biggest investment returns on a company with falling intrinsic value. That highlights the importance of buying at the right price !
This has been an extremely volatile stock, its has gone down to 5 in 2009, then up to 25 in 2010, back down fast to 11 that same year and again up to 19 in 2011 to again (yes again!) go down fast to 6 and up to 17 now ! Isn’t that a rollercoster that would make vomit most of you ?
PD: I still hold some USG bonds, Nov 2016, 6.3% coupon, initially bought at 78% of face value, they are now at 94-100 yielding 6-8%, I think they are quite safe compared with the stock.