I’ve found the entire homebuilding sector to be a bit perplexing. Considering the severity of the housing sector collapse, which essentially tanked the entire economy and whose aftereffects continue to plague our nation, I’d have expected that most homebuilders would have gone bankrupt. What’s more, getting a home loan from a bank is akin to wrestling top-secret information out of James Bond — yet another reason to expect companies like D.R. Horton Inc. (NYSE:DHI) to have a stock price of zero.

Yes, I know the easy money from shorting was made long ago, yet D.R. Horton’s stock trades at $8.71. Yes, it’s 80% off its pre-crash high, and yes, it’s almost 50% off its two-year high, but why isn’t the darn thing at zero? The company lost $2.6 billion in FY 2008 and $550 million in FY 2009. Last year it made only $245 million, thanks to the federal government’s tax credit on home purchases. What’s going on?

There are several reasons why D.R. Horton is not doing well but arguably is leading the rest of the sector in terms of financial health. It’s true that banks are tight on lending to homebuyers and homebuilders, since banks aren’t crazy about using a home price as collateral. Thus, financing is restricted while demand will continue to grow and affordability reaches historically high levels. So the large public builders that finance residential construction via substantial equity and debt based on their credit rating as an operating company (not collateralized by land) will win big when there is a housing recovery.

And D.R. Horton’s financial health always has been remarkably strong, despite its recent net income results. Despite that massive 2008 loss, the company still managed $1.88 billion in free cash flow. In 2009, it generated $1.1 billion, and in 2010 it generated $709 million. Unlike most other companies, D.R. Horton doesn’t have capital expenditures. It has building costs baked into its natural cost of doing business. The company used that free cash flow to pay down debt, from $3.5 billion in 2008 to $1.89 billion in Q2. Its borrowing costs are just under 4%. So it’s operating company history makes it a reasonable bet for the banks, and a better bet than most of its competitors.

The other advantage D.R. Horton has is a counterintuitive one. The company builds houses on “spec,” which you would think would be very risky. In truth, the payback period for that investment is short even in a weak market, and return on capital is high. Thus, it’s actually a very liquid asset that generates cash for the company in short order.

However, the first three quarters of this fiscal year show some kinks in the armor. Free cash flow is continuing its weakening trend. The company has negative cash flow of almost $90 million. I certainly don’t think it’s a short, since they have plenty of cash on hand ($891 million). But you are rolling the dice to a certain extent, given the volatility in the sector. Analysts see 15% annualized growth during the next five years. This includes a 36% drop during the next two years, so apparently they believe things will improve a lot further out. Still, I wouldn’t rely on that.

There is some downside risk here, but not much. D.R. Horton might be a speculative buy for some aggressive investors banking on a housing recovery a couple of years out. Should that happen, a doubling or tripling of the stock price is not out of the question.

Lawrence Meyers does not own shares in D.R. Horton.