BOFI - May 2015 Portfolio Review #3

BOFI - May 2015 Portfolio Review

At year-end, I reviewed each of my stocks, and talked about what happened with the stock since I bought it. At the end of the first quarter I thought I’d bring as many of them as I have the energy for up to date. I’ll continue with BOFI, a pure internet banking stock. This is the third of these reviews after SWKS and SKX. If you missed either of these I suggest you take a look at them too.

I bought BOFI over two years ago, taking my initial position at $28. It went pretty much straight up and hit $106 about 14 months ago, which was probably getting ahead of itself. It then fell (with a bounce or two) over about seven and a half months, to reach a bottom of about 65, all the time having no bad news at all. I bought more and more on the way down from about $90 to $65. It got back up to $98 a couple of months ago, and is now at $92. After all those gyrations it’s up about 19.5% the past year. Since I didn’t buy any of my position over $92, I have a greater or smaller gain on all my position. On my original investment at $28, I’ve almost tripled in two years and a quarter.

Now let’s see what’s happening with the company. Here are twelve-month trailing earnings running from Sept 2011 to Mar 2015. Here they are:


What can we see from this? Well it’s a steadily increasing progression, and a steadily rising upward slope. And even better, the slope has increased in the past year! As the company has gotten bigger, instead of slowing down, the RATE of growth has increased.

Comparing last quarter’s trailing earnings to three years ago, it has more than doubled, up 122% (from $2.20 to $4.88). Compared to one year ago, it’s up 38.6% (from $3.52 to $4.48). At the current price, the PE is 18.85, which isn’t bad for a company growing earnings at over 38%. The 1YPEG is 0.48, which is definitely in buying range. BOFI is my third biggest position at 14.1% of my portfolio.

Fletch pointed out the same thing about their Tangible Book Value. Not only is it growing, but the rate of growth is increasing. (I’m sure you’ve all read Fletch’s great write-ups on BOFI on this board, if not on the MF RB board). Here’s what the Tangible Book Value looks like for the last three and a quarter years (since the first quarter of 2012):


You’ll note that the first rise was 18 cents and the second was 54 cents, but now the Book Value has been going up more than $2.00 per quarter.

The efficiency ratio (which is like the inverse of the operating margin, and thus is better lower), is one of the best in the industry, by far.

Tom Engle (TMF1000), a well thought of member of the MF community, wrote a review some months ago on the RB board. I’m paraphrasing from his conclusions here:

The stock is currently priced at $79.63, which represents a PE ratio of 18.96 and a Price to book value of 2.89. I think they are attractively priced for long-term investors. I own them and plan on keeping them for the extreme long-term, which for me means that these shares will likely be inherited… I never liked investing in bank stocks. I feel even the strongest of them suffer during recessions, but BOFI has such a strong loan growth with excellent loan discipline that I believe they will do much better than the average bank even during recessions. This one could be my next superstock. I am very happy I invested in it.

Thus, while this is a very high conviction stock for me, which is my third largest position and which makes up 14.1% of my portfolio, it took a detour over the last 14 or 15 months, while the earnings caught up to the stock price, which had gotten inflated. It’s currently attractively priced and should continue to do well.


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