Standard Pacific: Don't sweat the small stuff

Earnings was released early in the morning. Missed revenue projection by a mile. Surprisingly, the stock held up OK.

Despite the miss, there are things to like about the company's position: both  net new orders and backlog are up substantially year-over-year and Q-to-Q. Land acquisition is up significantly, and according the CEO, approved land deals in April was above $100M, which is about the amount approved in all of Q1 (itself a significant increase). These will translate into substantial land holding this year.

The company focuses on higher price points than entry level homes, so it's not competing directly with foreclosures. That is, it is focusing on move-up home buyers.

It is still focusing on controlling the cost structure and profitability, not so much on increasing sales and revenue. Company not looking to increase sales a whole lot year-over-year, due to high unemployment rate. Higher sale should arrive when the employment picture improves. That's when things get interesting.

During the call, CEO estimated that the company can comfortably do $2B in revenue when the housing market recovers. It did $1.1B in 09. With a disciplined margin control, if and when that happens we can expect annual net income to hit $100M. Roughly, the market cap can reach $1B. So from here to there, we're looking at a double.

CEO also mentioned that there are prospective buyers who do have jobs and qualified, but still need to feel more confident about keeping their jobs before making new home purchases. They need to see that the economy is adding jobs consistently to jump off the fence. That's my view as well.

This is the kind of micro-cap I like to play: it has a clear plan and is focused on a long term vision that it knows it'll come out ahead. At this point, Standard's stroy is all about positioning. When buyers return, which they will, the company will do very well.

Caution for investors: Watch out for the massive dilution that will for sure arrive when the private equity firm MatlinPatterson converts their Series B Preferred shares and their warrants. Until then, enjoy the bumpy ride.