Monday, April 28, 2008

Bookkeeping: Adding to Gafisa (GFA)

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I am adding to my position in Brazilian homebuilder Gafisa (GFA) today - I did this in 2 chunks, as the stock has jumped off its 50 day moving average and is starting to look more promising...



Earnings are May 5th, and full year 2008 estimates are for $3.22 with tremendous growth to near $5 in 2009. P/E ratio compared to most homebuilders is sort of a moot point because most homebuilders are not growing at a 40% clip. So I'm not sure what P/E to "award" this name as "fair"; but I do believe it should be higher than the current forward 12x.

I continue to love Brazil and wish we had more high growth small and mid caps to invest in. I doubled my stake today from 0.9% to 1.8%, with a purchase this morning near $38 and this afternoon in mid $38s. I will add more if we can break over recent highs of $40.

I started this stake in November 2007 [Nov 19: Initiating a Position in Gafisa - Brazilian Homebuilder] and in half a year it is about the exact same price. At some point these great fundamentals should be reflected in a higher share price.

I look at Gafisa as where Homex was a few years ago; Homex has now "slowed" down to a 20% type of grower, which for a home builder is still great; Gafisa is approaching internet stock type growth, at 90-100% last year, and 30-35% going forward next year. Both countries (along with India/China) are learning the ropes about credit... previously cash based societies, now following the western path of "easy credit!" (careful what you wish for). So as mortgages become more common place, and credit markets more developed, home buying and real estate transactions should only grow in these countries.

The company is not cheap here, but has some serious growth engines as shown by its most recent earnings report on Nov 7, found here. Another company with great growth, sizable backlog, and pricing power. The market does not care about these things today, but eventually these type of things will matter again.

Long Gafisa in fund and personal account

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