Instead of the emperor’s new clothes, maybe it should be the emperor’s new home.

That, in effect, is how some how pros see the major investment made by four billionaires in WCI Communities of Bonita Springs, Fla., one of the nation’s largest luxury homebuilders.

Skeptics suggest it’s anything but a home-sweet-home-investment. They argue that the recent growth in the company’s shares, largely spurred by takeover speculation, is overdone and that the stock — based on Friday’s close of $22 — is overpriced on fundamentals and should be sold.

The short-selling fraternity, made up of investors who bet stock prices will fall, certainly seems to agree with that assessment. The latest figures show a whopping short interest of about 15 million shares for WCI, which Wall Street expects to lose money this year, and even more money next year.

The four multibillionaires and their holdings, held either personally or in funds or foundations, are:

• Carl Icahn, whose $4.5 billion hedge fund, which was up about 40% last year, holds 6.1 million shares, or 14.6% of the stock.

• Marvin Schwartz, a managing director of Neuberger & Berman, personally owns 2.26 million WCI shares or 5.3%. Mr. Schwartz is known as one of the Street’s most perceptive investment minds and is described as a “quiet Warren Buffet.”

• Steve Cohen, Wall Street’s most successful stock trader and the skipper of SAC Capital Partners, a group of hedge funds that manages more than $12 billion of assets. The fund holds 2.7 million WCI shares, or 5.7%.

•The Bill and Melinda Gates foundation, headed by the Microsoft co-founder own 887,000 shares or a bit more than 2%.

WCI builds luxury homes (averaging about $400,000), residential towers, and develops palatial leisure and retirement communities on Florida’s coasts, in New England, and in the mid-Atlantic states. Last year, WCI is estimated to have earned $2.09 a share on sales of $2.1 billion.

Judging from what she’s telling clients, a homebuilding analyst for UBS, Margaret Whelan, essentially regards WCI as a billionaire’s folly, and describes the company as her “top pan” for 2007. WCI is her only “reduced-rated stock,” and she says the company’s margins and returns have lagged in the housing group for years, its debt carry is above average, and she believes Florida’s luxury condo market is likely to underperform for years to come. As such, she expects WCI to continue to incur greater margin deterioration relative to its peers.

Ms. Whelan further notes that WCI’s home and tower building orders have fallen a combined 66% year over year through last September. She also expects free cash flow to decline this year, leaving the company less able to make required interest payments on its debt and potentially tripping its covenants.

Largely fueling takeover speculation is Mr. Icahn’s recent disclosure that he boosted his WCI stake and plans to contact the company to have a series of discussions about its business and prospects and how to unlock the inherent value of its shares.

Asked whether he was prepared to become more aggressive to hike the price of WCI’s stock, such as pushing for management actions to do just that, Mr. Icahn declined comment.

Meanwhile, WCI, which also wouldn’t comment, has attracted the attention of other activist investors, such as Hotchkis & Wiley Capital Management. The firm has a 16% stake in WCI and is seeking to engage the company in constructive discussions about its business and possibly about the structure of its management and board of directors.

In a related development, a Neuberger & Berman source tells me Mr. Schwartz considers a WCI takeover a strong possibility. The source figures WCI, in a buyout, could fetch between $31 and $35 a share, or roughly something in the range of $1.3 billion to $1.5 billion.

It’s unclear whether Mr. Schwartz, who refused to respond to repeated calls seeking comment, has been in touch with any of the activist investors and would join in any hostile action against the company. Neuberger & Berman, supposedly independently of Mr. Schwartz, owns 3.9 million WCI shares, or 9.3%.

Where WCI’s stock goes from here is anybody’s guess. One of the smartest traders I know tells me he bought 5,000 shares for his own personal account after it was announced Mr. Schwartz had taken a stake. “I know the analysts hate it and the Florida market is soft,” he said. “But the real smart money in WCI is saying ‘own the stock.’ So I’m going to stick around.”

The bottom line: Mr. Blandings’s dream house turned out to be a nightmare. Could our billionaires’ house be one, as well?

dandordan@aol.com