Value and Arbitrage in Time Share Stocks

By: ispeculatornew
Date posted: 08.20.2008 (10:50 pm) | Write a Comment  (0 Comments)

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One of the first stocks I recommended on my website was Silverleaf Resorts (SVLF). The stock was trading at low PE ratio and was also trading below book value. I recommended selling too early but my recommendation still resulted in a gain of 18% in five months. I have continued to follow Silverleaf Resorts and I think the current stock price provides a better opportunity than when I recommended the company previously.

Silverleaf Resorts is a perfect example of what value investors look for. According to Yahoo Finance Silverleaf has a book value of $4.98 however the current stock price is only $1.88 at today’s close. That means Silverleaf Resorts is trading at only 38% of its actual value.

In addition the company has good earnings. The company has given guidance for diluted EPS (earnings per share) between $0.56 and $0.58 for this year. If you take the low end of their guidance then you get a PE ratio of 3. That is a ridiculously low valuation. The company has also authorized the purchase of up to two million shares of its common stock (representing approximately 5.3% of the outstanding shares).

I think the main thing that is depressing the stock price of Silverleaf Resorts is the weak economy. Investors are concerned whether people will continue to purchase time shares and they are also concerned about people’s ability to pay on the time shares they own. That is why the company is trading so far below book value (investors are putting a discount on the time shares that Silverleaf has sold). Therefore, I wouldn’t be in a rush to purchase shares of Silverleaf Resorts right now.

However, if the economy starts to turn around and Silverleaf Resorts is still trading at such a low valuation I wouldn’t definitely recommend picking up some shares. As baby boomers start to retire time share companies will see a big benefit.

Another time share company that is worth checking out is Bluegreen Corporation (BXG). The company currently provides an interesting arbitrage opportunity. Diamond Resorts International announced a nonbinding agreement to acquire Bluegreen Corporation for $15 a share. However, Bluegreen is only trading at $11 at today’s closing price. That means you can score a 36% gain if the acquisition goes through.

Disclaimer: I do not have a position in BXG or SVLF.

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