Table Pounding Ideas?

[Broeb22]

I am also pretty intrigued by some of the fast-fashion names. Even though the young consumer claims to be interested in the ethical treatment of everything from the animals in the food they consume to the planet they live on, they still love to get their rocks off buying a cheap outfit to have something new to wear on Friday, even if its threadbare by Saturday morning. 

 

The whole industry is really quite interesting, from Inditex to Zalando to Asos to Boohoo and more. They all have slightly different propositions, but I think the notion that speed kills in the fashion business is a timeless principle that's even more true today, particularly online. Imagine designing 50 products on a Tuesday, getting a prototype by Friday, then making 25 of each on a Monday, then listing them on your website on a Wednesday, getting instant feedback on the popularity of designs, information which drives which garments you produce in quantities of 2,500 and sell like hotcakes. It's just a brilliant model that has the potential to reduce inventories as well as the massive markdowns endemic to the fashion industry. I can't decide which of these is likely to be the biggest winner, but at current valuations you don't have to be too picky when you can buy consistent mid-teens growers for ~15-25x earnings.

[matthew2129]

1 hour ago, Broeb22 said:

I might be a broken record, but DFH is on pace to hit over $3 per share in earnings in 2023, which implies a 6x P/E on 2-year fwd earnings from a company generating a 30-40% ROE. They're exposed to the homebuilding cycle, i.e. interest rates, wage and materials cost inflation, and other hard-to-predict factors, but the CEO is a finance guy who builds houses and I think he saw what Dwight Schar has done at NVR (almost take NVR bankrupt, then raise it like a phoenix from the ashes using only land-options, then granting himself generous options while buying back oodles of stock, then becoming wealthy enough to be a minority owner in the team currently known as the Washington Football Team, who then agitated for Daniel Snyder's ouster as majority owner of the team) and wants to see if he can do something similar.  

 

 

Big fan of NVR. Does DFH have any affiliation or stated goal of imitating NVR? Or are you just drawing the comparison b/c of the asset-light business model utilizing options? 

[Broeb22]

@matthew2129No they have not publicly stated an intention to do consistent buybacks, so there is a little bit of wishful thinking on my part. 

 

If I'm being honest, if NVR were capable of reinvesting all the cash they generate at returns remotely approaching their existing business, that would be even better, no? The DFH CEO has been pretty aggressive thus far in growing his company through acquisition, buying assets in NC/SC and more recently Texas. 

 

I think his plan may be to do the land-banking for DFH privately, which removes some of the challenges of scaling the options-only model. Either way he goes, I guess I'm hoping by him being a finance guy from a decent Florida school (Stetson) he is a little more educated in the principles of what made NVR succesful. I do know that the DFH roadshow compared NVR and DFH pretty explicitly, so I'm just hopeful, nothing more, that he learned those lessons from NVR related to just buying back stock if its cheap when there are limited reinvestment options.

Edited December 7, 2021 by Broeb22

[matthew2129]

22 minutes ago, Broeb22 said:

@matthew2129No they have not publicly stated an intention to do consistent buybacks, so there is a little bit of wishful thinking on my part. 

 

If I'm being honest, if NVR were capable of reinvesting all the cash they generate at returns remotely approaching their existing business, that would be even better, no? The DFH CEO has been pretty aggressive thus far in growing his company through acquisition, buying assets in NC/SC and more recently Texas. 

 

I think his plan may be to do the land-banking for DFH privately, which removes some of the challenges of scaling the options-only model. Either way he goes, I guess I'm hoping by him being a finance guy from a decent Florida school (Stetson) he is a little more educated in the principals of what made NVR succesful. I do know that the DFH roadshow compared NVR and DFH pretty explicitly, so I'm just hopeful, nothing more, that he learned those lessons from NVR related to just buying back stock if its cheap when there are limited reinvestment options.

Helpful background, thanks.  Will definitely have to take a closer look at this one