BofI continues to win accolades and outperform other banks.
Yet the stock price continues to fall, back into the $16 range today. Even with the overhanging cloud of uncertainty I’m considering buying another small portion as this stock appears just stupid cheap (as long as they are on the up and up).
The float is 40% shorted. It’s hard for me to imagine the current scenario continuing much longer. By that I mean doing well on all performance metrics with no confirmation of any wrongdoing on the companies part, yet the stock still languishing or even falling.
I think we’re getting to a point where the stock will have to choose a direction:
- Either some confirmation of bad news comes out and it goes lower.
- Or, if the next quarter’s results are as good as all recent quarters have been, then I think the stock finally goes higher.
I think the second scenario is more likely, I just don’t see how much longer their out-performance (with no confirmation of wrongdoing) can be ignored.
What do others think?
From a valuation perspective, BOFI does indeed look attractive. However, the stock is squarely on my ‘not at any price’ list, because there is, in my opinion, no way to properly handicap the downside.
Every investor gets scars from unforeseen risks if they have been around long enough. Mine include anything from SQNM (improper clinical trials) to CHK (expansion at any cost). For me I view stocks like BOFI as ‘too hard’, especially when you consider that there are literally thousands of other companies that don’t carry this type of baggage.
Also, I have seen many controversial companies respond in various ways to published short seller research. I have never seen an instance in which a company took such an aggressive route (BOFI has actually begun legal proceedings) where investors live happily ever after. When a company fights back against the ‘evil short sellers’ with such fervor, it is never a good sign in my experience.
I’m with bobloblaw on this one.
I had once owned a stock (Aremis Software, ticker AREM) with stellar numbers. Every single metric (sales, FCF, EPS, …) was improving gradually over time for all the years of backdata that I had (4 years). No suspicious jumps, just everything apparently running super-smoothly. Good sales growth, good cash conversion, good free cash flow, good everything. It almost looked too good to be true - and it actually was. Others found that out before me and shorted the hell out of the stock. I couldn’t believe it. I vividly remember all the stories about the evil shorts and their attacks without merits and how more stocks were shorted than stocks existed. Of course they were right. Instead of the mother of all short squeezes I rode the stock to almost zero. (Luckily I got most of the money back via a class action lawsuit - thanks, US jurisdiction).
My lessons learned include
- not all shorts are evil, lying or stupid or their cases without merits. Sometimes they are right. I watched more such cases while staying clear of heavily shorted stocks. More often than not I was glad I did. I learned to respect the shorts as smart money.
- remember KMI? It was shorted heavily before it went from almost 45 to 12 (and recovered to about 18 now). The high short number made me hesitate and watch from the sidelines. I’m glad I did.
- sometimes the numbers lie. Or rather: not the numbers but the companies that issue them. It simply happens. Remember Enron? Backed up by one of the most respected auditors of that time, Andersen consulting?
I don’t want to suggest that BOFI cooked their numbers or anything. I’m just saying that I view a high short interest as a yellow flag. I need extra conviction to go against this. I don’t have it in the case of BOFI. I stay clear, there are so many other promising investment ideas around. Feel free to disagree, my track record is spotty.
Good luck to all, whether you are long or short or on the fence on BOFI
Another stock with a lot of shorts is Cal-Maine (CALM), a very large egg distributor. The shorting is likely based on the commodity nature of eggs, and not on the probity of the company.
I’ve made some money on it by selling it when I needed some cash at a lucky time just before the price happened to drop quite a bit. I just made a little more money on it by selling puts when it happened to be rising.
The price fluctuations and the shorts make me reluctant to hold the stock for long. If the price dips again, I’m likely to sell puts.
I forgot to mention that I’m also avoiding BOFI because of the uncertainty, but it sure would be nice to be able to find out the truth with stocks like these.
Speaking of banks, this was some interesting banking history:
"…the 111-year-old bank [Bank of America] has come within a hair’s breadth of failure in every banking crisis since the Panic of 1907.
“…we can trace the cultures of the two best big banks today back to a single individual: Carl Reichardt, the CEO of Wells Fargo (NYSE:WFC) from 1983 to 1994.” [The other “best bank” is U.S. Bancorp.]
“Bank of America and Citigroup (NYSE:C) have nearly failed in every major banking crisis dating back to the Great Depression. Most recently, Citigroup almost went under in the 1990s after it lent money to teetering South and Central American countries. Bank of America was on the verge of bankruptcy around the same time thanks to excessive spending, reckless lending, and an inverted yield curve. And of course, Bank of America and Citigroup would have both failed in the latest crisis if the federal government hadn’t stepped in with hundreds of billions of dollars’ worth of capital and loans.”