D.R. Horton, Inc.
Thesis
I advocate a short position in the common stock of D.R. Horton, Inc. as I believe the stock has an intrinsic value today of $7.25, representing a margin of safety of approximately 40% against today’s price of $11.86. The company is poorly positioned in the current homebuilding environment with significant exposure to weak geographic markets and deteriorating sales orders, which will likely lead to further impairment announcements.
Did it work?
The short thesis called for roughly 40% downside to an intrinsic value of $7.25, but D.R. Horton instead rose dramatically over the ensuing ~18.75 years — a price move from $11.86 to roughly $147, which translates to a loss of about -1142.7% on the short position. Far from deteriorating, the homebuilder recovered from the housing crisis and compounded substantial value, decisively invalidating the thesis on both the valuation and the predicted impairments/weak orders. With the full horizon long past and the return overwhelmingly against the stated direction, this is a clear failure.