New Constructs CEO Joins PreMarket Prep, Talks Robinhood's Valuation And DR Horton's Outlook

If there's one thing investors should have learned over that past year, it's that eventually earnings/valuations of a company matter in the long run. A story or momentum buying can only take you so far. In some instances, it can take an issue to unimaginable levels.

Shorting issues based on valuations can be a very dangerous game to play; however, buying issues at nosebleeds valuations can be even more dangerous.

PreMarket Prep Guest: David Trainer, the founder and CEO of New Constructs Joined Friday's PreMarket Prep broadcast.

Trainer is a Wall Street veteran and corporate finance expert who specializes in reversing accounting distortions on the underlying economics of business performance and stock valuation. He was a member of FASB’s Investor Advisory Committee from 2013-to 2017 and is the author of Modern Tools for Valuation (Wiley Finance 2010).

Trainer founded New Constructs to use the latest Natural Language Processing technology to identify and analyze every data point in an SEC filing from the MD&A, financial statements, and footnotes. New Constructs covers over 3000 stocks, 7,000 mutual funds, and 400 ETFs by leveraging its Robo-Analyst technology.

Robinhood: Trainer was blunt with his comments on Robinhood Markets, Inc. HOOD.

“We have been bearish on Robinhood since its IPO and if it does not get taken over, it is going to zero," he said. “It is a broken business model and I do not see anyone coming to buy it until $6.”

Bullish On A Boring Stock: Trainer, who has been on the show a few times over the past year, has been bearish overall. He was prodded for some bullish calls on an issue and came up with a surprising one, D R Horton Inc DHI.

Producer Spencer Israel mentioned "homebuilders are a mess right now and asked what Trainer about DR Horton.

"They are focused on the niche of the market that is going to be expanding the fastest," Trainer responded, "and that is the low-end of homes... The most affordable homes and the company has the highest rate of return on capital.”

He acknowledged rising interest rates are going to “put a damper on homebuilding” and the issue is priced “as if it is never going to grow.”

“It is currently priced as if profits are going to fall 70%," he said.

The full discussion with Trainer from Friday’s show can be found in the video below. In the interview, he detailed his approach to evaluating earnings and had some interesting comments on others issues as well, including a bullish take on Intel Corp. INTC.