HSOA – Initiation of Buy Recommendation

By: ispeculatornew
Date posted: 01.29.2007 (12:00 am) | Write a Comment  (0 Comments)

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HSOA – Home Solutions of America (Nasdaq) (Closing Price – $6.52)

Home Solutions of America is a company that I have some reservations about recommending but I think now is a good time to buy.

HSOA provides recovery, restoration, and remodeling services. The company’s stock price had quite a run last year but a questionable press release by the company sent the stock sharply down and the stock hasn’t recovered. I will leave it to you to find out the details of what happened but it definitely raises concern about the management of the company.

Having said that I think the mishap has been priced into the stock and HSOA is ready to start its upward climb again.

From a valuation perspective HSOA is way undervalued. The company has given earnings guidance of 0.56 – 0.60 for the current year. If they make the low end of their guidance it would be more than double what they made last year, 0.25. Matching the low end of their guidance would give HSOA a PE ratio of 12, which is very cheap considering the growth in earnings.

Next year HSOA has forecasted revenue growth of 30%. I think it is definitely feasible that they will achieve that forecast because the reconstruction of the hurricane affected areas is starting to pick up steam. Today they announced a new contract and I expect more contracts will be announced in the future.

They said in their last earnings release that they plan to update their guidance early this year. I anticipate this to be a positive catalyst. If they reaffirm or increase their guidance the stock price will definitely jump up.

Late last year there was some substantial insider buying. This is a good sign and shows the management is putting its money where its mouth is.

Currently, HSOA is being heavily shorted. According to yahoo finance the short position is over 35%. If the stock does break out of its trading range it could trigger a major short squeeze.

HSOA is also a hurricane play and any future hurricanes will send the stock price up.

In light of all of these factors I think HSOA is a good speculative investment. If they can meet their revenue guidance for next year I think the share price can retest the highs of the previous year.

Disclosure: I currently own shares of HSOA.

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