HSOA

[alvin58]

Cant believe this sold off on the report. It really looked good to me. Any comments? Im holding and I will average down tomorow. Every time it has a big drop it doesnt stay down very long.

[ScottishTrader]

I dunno, if I hadn't just lost my shirt on this one today, I might agree that it could be a good buy. But while it looks like it might have found support at the ascending trendline from the recent lows, that was and UGLY sell-off on BIG volume.  HSO may have some trouble working that one off.  I would look for CCI to bottom and reverse, it may still pierce 5.00 in the aftermath of todays bloodbath.  eugh!

[for3J1M]

scottish trader, sorry to hear you got caught in hsoa on the way down. my shares at 4.98 are still holding. i was playing with profits so i was lucky. im still up alittle. we are looking better today. hope it holds. good luck alvin58

[alvin58]

I managed to average down. Im now in at 5.59. I thought it would turn around but not this soon, so Im happy. Maybe this morning news helped.
Home Solutions Of America Enters Into New $25 M Surety Bond Facility Through AIG Environmental(R)>HSOA  Dow Jones Newswires

[stocks2watch2]

Real ugly!!!

I actually made a veeeery bad decision and picked up some first thing as it was tradining up - average 6.09.  Didn't set a stop on it and got creamed!  Real ugly 1 day loss, but I made a mistake, got out at 4.40 and moved on.  trange tough, Earnings looked pretty good from wha I could tell, but I suppose it was their guidance that got people irked.  It tanked so hard and fast, I really didn't see it coming!

Oh well, I hope you still managed to get some profit out of this trade.

Hope you meant to say 5.40. Yes it dropped fast, when I saw it wasn't going to hold 6.00 I started a limit sell and then the drop, I quickly changed it to a market and sold between 6.02 and 5.69.
I did buy back in this morning,as I think the market overeacted. I still think we will hit your 8.00 before next quarter.

[David Randolph]

1. Introduction

I made good trades on HSOA (HOM back then), and I see the 3 SOF Community still maintains an interest on the stock. I'll take a fresh new look at it today. If you're new to 3 Stocks on Fire, please register so you can receive our free newsletter.

2. Profile

Home Solutions of America, Inc. (HSOA) offers recovery, restoration, rebuilding/remodeling, and specialty interior services to commercial and residential properties in the United States. (complete profile here)

3. Technical Analysis
3.1. All History Chart



I wonder if this chart is completely correct. Perhaps there was a stock split in 1998 that wasn't adjusted.

3.2. Medium Term Chart



What a run, from just above $1 to $14 in just twelve months. Then a crash, why was this? I need to read the news of the time ... Technically the medium term trend is undefined.

3.3. Short Term Chart



We now have this symmetrical triangle on the chart. It can break one way or the other. The ascending trendline stands at $5.21 and the descending one is standing at $5.88.

I've seen stocks2watch2, alvin58, for3J1M and ScottishTrader a bit surprised about the red marubozu this past week. I need to know what was on that news, more than that, I need to insert the news in its proper historical context.

4. Fundamental Analysis
4.1. Number of Shares Outstanding



Here's at least part of the explanation for the fall in 2006: Look at the massive dilution in 2006, with the # shares outstanding growing from 28 million in 2005 to more than 47 million now.

The current market cap is 47,122,792*$5.36 = $252.58 M

Dilution increases market cap without the correspondent rise in the share price and reduces Earnings Per Share.

4.2. Liquidity



The current ratio of 1.4 is below my 2 minimum threshold. But the biggest problem is the composition of the current assets, which is mainly made of Receivables. Let's check the Receivables evolution on a quarter by quarter basis (just since 2003):



There was a big jump in Receivables in Q3, to $75 M. The market sure didn't like this, and it is a partial explanation for Tuesday's sell off.

4.3. Revenues



There was strong revenue growth in 04 and 05 and analysts are estimating more revenue growth for the entire fiscal 06 and 07.

Estimates for full year 2006 are in for $160.8 M (it needs to post $69 M in Q4 revenue to attain this, the best quarter on the company's history). The Price to Sales Ratio is $252.58 M/$160.8 M = 1.57.

4.4. Profits



06 EPS estimate is $0.62. The company made just $0.29 so far, so it needs to make $0.33 in the 4th quarter to meet Wall Street expectations. It will be hard, and the company already missed estimates in Q3:



This is another explanation for Tuesday's 15% decline.

5. General Overview

There are numerous fundamental problems with HOM: Massive dilution, extremely weak and suspicious balance sheet, revenue and EPS estimates that probably won't be met.

Also, the technical picture is in danger of getting decidedly bearish, if the stock falls down just another 5%, with a symmetrical triangle breaking on the downside.

Stocklemon has many articles on HSOA which fully explains what's going on inside the company:
06/02/2006 Stocklemon Reports on Home Solutions of America
06/06/2006 Stocklemon Updates on Home Solutions of America
06/07/2006 Stocklemon's Response To Home Solutions of America
08/15/2006 Stocklemon Updates on Home Solutions of America
09/27/2006 Stocklemon Updates on Home Solutions of America.
10/18/2006  Stocklemon Updates on Home Solutions of America.

My outlook on the stock is bearish, HSOA can go down to $1 (of course, the market cap will be many times bigger than the last time it was there).

If you enjoyed this analysis and want to receive more like this on your mailbox (hopefully a more bullish story  , please register).

[njshiva]

I made nice profits on HSOA during HOM days (Thank you David)
I think this company started as a shell with all those reverse splits and benefited a lot because of hurricane Katrina.
Applaud you David for nice analysis. I wouldn't short it though too much negativity.

[dmdray69]

Hi David, thanks for the analysis but a few things were incorrect although it probably wouldn't change your opinion.  So far the made .33 cents on the year and the only estimate I could find was for 58 cents for the year making the 4th quarter need to be .25 cents.  The company just reconfirmed their yearly number target of 56 to 60 cents saying that this next quarter will be their best ever.  They missed estimates this quarter of .20 cents but they never gave quarterly guidance. 
     Their latest 2 acquisitions of Fireline and Associated Contractors has allowed them to  guide for 200M revs next year with 30% annual growth giving them a forward PE of 6.5.  The higher receivables seems to be normal for a company taking on large government contracts that deal with rebuilding the New Orleans area (money comes in slowly but it comes in!!).  To control this issue they were recently approved by a conglomerate of banks for 60 M in credit (giving a great deal of credibility to their future prospects IMO) as well as the latest 25 M surety bonds.
    It seems to me they are seizing a great opportunity to grab a whole lot of work rebuilding in the wake of Katrina while growing a monster of a company (through smart acquisitions) that can have a real permanence in the area.  Not to mention slowly branching out to neighboring states and increasing their exposure into additional Home Depot stores, etc.
     As far as a 1 dollar stock price that would give them a forward PE of 1.3.  Seems crazy to me but the shorts certainly seem to have a strangle hold on this one.  Ray

[for3J1M]

nice move up from 5.05. my shares at 4.98 and 5.02 held    sorry guys,im new at this and not sure how to post links. insider buying today

[stocks2watch2]

Here ya go Busybee

Purchase 2006-11-29 2006-11-29
12:55:25 HOME SOLUTIONS OF AMERICA INC HSOA OBRIEN RICK JUSTIN President and COO 20,000 $5.48 $109,600 218,930 Direct View
Purchase 2006-11-27 2006-11-27
17:54:03 HOME SOLUTIONS OF AMERICA INC HSOA CHADWICK MICHAEL S Director 5,000 $5.19 $25,950 45,000

[dmdray69]

Very strong on a bad day for the market Friday.  I think spurred on by four insider buys in the last week which I think was spurred on by the road homes money finally coming in strong.  I think this will have a significant impact on the current quarter's revenues and put a lot of unkowns and questions about management to bed.  Up almost 20% in the last 10 days it seems that longs are starting to wrestle this away from the shorts with over 13 mil shares to cover.  This could get interesting if any PR comes out clarifying specific figures rolling into New Orleans.  I feel HSOA has a solid company in place to snatch up a lot of this money.  IMO

[for3J1M]

more insider buying   lets see if we can stay above 6 this time!

[stocks2watch2]

Was also downgraded today by Matrix from buy to hold.That's why it dropped this morning.

Purchase  2006-12-04
12:06:30 HOME SOLUTIONS OF AMERICA INC HSOA FRADELLA FRANK J Chief Executive Officer
Director 25,000 $5.92 $148,000 1,730,448 Direct

[for3J1M]

still moving    looks like we test 6.35 today. i would like to see more volume.

[stocks2watch2]

Strong going into the close,selling some @ 6.52.