The only other asset manager with similar characteristics to ACAS is TROW. They have about $4 billion in net asset compared to about $5 billion at ACAS. They have a 23% return on equity compared to 24% at ACAS. They have a 43% profit margin compared to about 53% at ACAS. They have a reputation for out performing the competition, although nothing close to AGNC. They earned about $750 million last year. They spent about one third of that to pay shareholders a 2.2% dividend. They spent the other two thirds to buy back about 3% of their company stock, which sells for 20 times trailing income.By doing this, they were able to increase quarterly profit from 73 cents per share to 76 cents per share. I do not know about you, but I think that repurchasing 10% of company stock and increasing profits by 60% per share is a slightly better deal. So what do you think?
ACAS stock buyback is only for the limited time that sales price is below net asset value. By contrast whenever TROW stops flushing $500 million per year in shareholders money down the toilet buying back stock at 5 times book value, their stock will drop down to a more normal price of about 13 times trailing income and shareholders will lose about $6 billion in capital on TROW sales price drop. Remember, ACAS is significantly undervaluing ACAS LLC. They are valuing it at 13 times trailing profits, which is the average in the industry. Since they grew revenue by 175% during the previous 12 months, they probably have a value of 24-36 times trailing year income, so that a small ipo can easily aborb all 1.6 billion in ACAS capital loss carryovers, and produce more cash for investment
TROW's doing the divs and buybacks just to keep the market's lips wet.
It's trading at 5X book value, while ACAS is trading at 0.6X book. TROW doesn't see any economic benefit to stock buybacks, so the only reason to do them is so that people who like being in stocks that do buybacks will buy the stock.
It's yielding 2.5%, which imo is too low to care about, so the only reason they do a div is so people who can only buy stocks with divs will buy the stock.
Other than that, their business models couldn't be much more different and still involve playing Mr. Moneybags with other people's money.
If ACAS could buy up to 20% of their stock on the open market, thereby reducing the number of shares outstanding, we could see them provide earnings of over $1.00 a share in the coming quarters. In fact, I would rather see them buy their stock at the current prices than to give their earning away as dividends.