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August 23, 2007

How Bad Really Is NovaStar Financial Inc - Beginning of a Supernova or Death of a Star?

posted by MR WAVETHEORY at 8/23/2007 04:37:00 PM
I was fumbling through the stock pages yesterday and couldn't help notice that Novastar Financial Inc (NYSE NFI) was a worth $132 a year ago and today is trading at $9.53 or around $10 bucks. That's a greater than 90% wipeout. The chart tells the entire story.

If it weren't for a 1 for 4 reverse stock split, it would barely be floating above $1. This stock is yet another victim, perpetrator of bad lending practices in the subprime sector. How long before it goes belly up? It's up to the lenders. They got a waiver of default from Wachovia last Friday.

NovaStar Financial Inc. said Thursday that Wachovia Corp. waived any default provisions related to Moody's Investors Service downgrade of NovaStar's servicer quality rating.

In a filing with the Securities and Exchange Commission after the market closed on Thursday, Kansas City-based NovaStar (NYSE: NFI - News) said the waiver was granted on Friday and is effective until Nov. 1.

Heading up or belly up? The stay of execution has been granted until November 1st.

The stock is a buy? I don't know. I know that some of the existing shareholders have to share some of the blame for driving up the stock price to the stratosphere. Many of these NFI chasers bought the stock because of the juicy dividend yield the company was paying and these lemmings, I mean investors, marched into this stock like lambs to the slaughter. At least, shareholders can relish in the comfort that they aren't the only ones losing sleep. CEOs of the biggest baddest subprime mortgage lenders have also been the biggest losers in the subprime mortgage mess.

Michael Strauss, founder of American Home Mortgage Investment Corp. (NYSE AHM) was worth $160 million before it went belly up. He sold his shares for $3 million when it imploded. Scott Hartman of our very own Novastar Financial got his fortune blown up from $160 to a tad under $10. CEO of Tarragon Corporation William Friedman (Nasdaq TARR) saw his fortune shrink from $45 to $2 million.

In this subprime game, there are opportunities and it's about figuring out which companies won't go bankrupt. I'm still keeping tabs on my list and waiting to make a move on some of these names. Somehow, I have a hunch we haven't seen the worst of it.

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Blogger TraderDave said...

this stock was never $132.


3:03 PM  
Blogger MR WAVETHEORY said...

you are right dave. i should have written that it was $132 after the reverse split.

12:45 AM  

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