Sunday, February 12, 2006

NFI Gets Smacked Around

Shares of NovaStar Financial (NFI) are struggling with vehement short sellers who think the company's financials are murky.

On Friday, the shorts won yet another battle in this ongoing war after NFI released a disconcerting memo that hit shares 11% to the downside:
NFI took a pounding on news that the subprime mortgage lender is delaying the release of its fourth-quarter earnings over concerns about its corporate tax policies. The Kansas City lender, which specializes in making mortgage loans to homebuyers with shaky credit histories, said it has "decided to obtain legal opinions to further support certain tax positions of the company."

The tax issues may have something do with NovaStar's organization as a real estate investment trust. To qualify as a REIT, NovaStar must return at least 90% of its taxable income in dividend payments to shareholders.
NFI pays out a fat $5.60 dividend.

Nevertheless, with 34% of the float currently being shorted, this is a stock to keep at bay.

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