I’ve been reducing, and now exiting, my position… Why?..
Well here was my review at the end of September, 2016:
Bofi is a branchless bank (internet-only), which has been under a concentrated short attack for some time. I had started my position in July, but I was hesitant to discuss it because of all the hassle I had had about changing my mind about it previously. This is still a very risky stock because of the danger that some of the shorts’ claims may turn out to be damaging enough to really hurt the company. (Management is clearly not clean as driven snow, but the question is: How will that actually affect the company?) . On the other hand the company is growing rapidly, earnings and book value are both growing rapidly, and its efficiency ratio is very low (good)… I don’t want to let it to get too much over 5%. While the shorts seemed to have backed off and the stock price is working its way up, just remember that the lawsuits haven’t reached a conclusion yet and there is still plenty of risk.
Okay, so what’s changed now that brought you to a different decision?
I took this position a little less than 6 months ago at an average price of about $17. (For comparison, that’s $68 pre-split, I had exited at $110. I still think of the pre-split prices to orient myself). At that point its tangible book value was growing at an average of about 34% each quarter. Its efficiency ratio had been 32 to 34%. Earnings per share grew 38% from 2014 to 2015. It had a PE of 9.5, which certainly cushioned my risk.
Most recently, I’ve been selling my position at prices from $29.75 to $28.25. That eyeballs to an average price of $29, but my average price was actually a little lower, say roughly $28.85. (For comparison, that’s about $115 pre-split).
Why have I been selling? Well, Bofi’s tangible book value growth rate has slowed each quarter for six quarters in a row, from 36 to 34 to 32 to 30 to 27.5 to 25.5 to 24%. Its efficiency ratio has risen from 31.7% in Mar to 38.3% and 38.9% in June and Sept. Its growth rate of earnings per share the last two quarters has slowed down to 16%. All these changes have been for the worse, while its stock price has risen by about 70% since I bought it, and its PE is now up to 15.3. These changes have removed my cushion to risk and reduced my motiviation to continue with a company with questionable management. They may do fine, but I’ll look elsewhere. And nobody has to agree with me! If you want to hold your Bofi, or add to it, more power to you. It just doesn’t look the same to me as an investment as it did in July (for all the reasons I just cited).
Saul
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