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TD Ameritrade Holding Corporation Message Board

  • tsjaxson tsjaxson May 27, 2003 3:02 PM Flag

    Grossly Overvalued

    Hello,

    I am interested in anyone's thoughts as to the valuation currently awarded to AMTD. Based on a boring DCF analysis (assumptions: 25% EPS growth for the next three years, terminal growth rate of 5%, terminal PE multiple of 20x and a generous discount rate of 15%) I value AMTD at $3.25 per share. I need to assume a 70% plus growth rate over the next three years to value this stock at over $7.00 per share. Am I missing something???

    In the interest of full disclosure, I am short AMTD at $7.25.

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    • I am 95% sure that AMTD is overpriced.
      The only reason I can think of now for the overprice is that some people have deep pockets to distort the price. However, the pockets will get holes and the holes will eventually become bigger and bigger.

    • TS,

      If you care and are not just bashing, I'll tell you why your assumptions are biased. You start with 25% EPS growth. AMTD is adding ~30k accounts/month or 360K per year or about 12% increase per year in REVENUE. Since a large part of costs are fixed, you could assume that ~40% flows to the bottom or $25M or so per 10% rise in revenue.

      Next, if the economy keeps improving, you could have a 25% bump in trading just on increased trades alone, not anywhere near the 100% increase in trades that would be necessary to return to 2000 highs. Add in a sustained 25% bump and you have another $50M or so.....

      Add all that up, and you are looking at EPS of around 50 cents.... And you have a stock worth 20x .50 = $10.

      Another simple metric is accounts. They now have 3M x $1000 per account (the Datek accquisition was something like $1,400?/account others were more like $700/account for a guess of $1000) gives you your 3B market cap. Adding 360k/year and you have an automatic 12% increase in the stock price per year.

      A DCF is just one of 5 valuation metrics: DCF, LBO, sum of parts, trading multiples, and past transactions. DCF is the least valuable in a high growth environment.

      Then again, trading may not pick up and it will be a $3 stock. You never know.

      GB

      • 1 Reply to goldenbear24
      • GB,

        I very much appreciate your analysis - particularly the buy-out metrics. I agree that an acquistion would probably fetch $10 or more per share. As for the revenue and EPS growth, your scenario could very well prove true should the economy recover. My rationale for shorting is that the economy is not recovering and the market will wind up giving back much of its recent gains. If that proves true, trading volumes should again dry up, leading to a sharp reversal in AMTD...

        TS

    • Your thoughts are rational, but when has the market been rational in the last 5 or 6 years? The only constant is irrational exuberance (both long & short).

      If your calculations indicate a share price in the low $3 range, you should have bought it when it was trading there (about 2-3 months ago?).

      In the meantime, hedging your short with options is the way to go. You'll probably do much better than any buyers at this level.

      Full disclosure: long & holding

    • Your DCF analysis is reasonable. I just drove by the dumpy headqtr bld. of AMTD today in Belleview Nebr. Hard to believe they value this company at over 3 billion. They will earn about .23 per share this year and maybe .34 next. The bubble mania is back, so any whiff of an increase in online trading will send AMTD, ET and SCH up 20-30% or more. It is insane but so was nasdaq 5000. So is EBAY at 101 or Amazon at 34. or yahoo at 31. Warrnen Buffet says it is hard to find any values in the market now. Good luck. TomSki
      ps maybe sell some 7.5 puts as a hedge against your short position.

      • 4 Replies to TomSkiLV
      • >>>>>
        Your DCF analysis is reasonable. I just drove by the dumpy headqtr bld. of AMTD today in Belleview Nebr. Hard to believe they value this company at over 3 billion.
        <<<<<

        If you actually knew a thing or 2 about AMTD, you'd know that the call center is in Bellevue (in a mall or something), and the HQ is in central Omaha.

        -vdub

      • To Tomskilv; You just happen to be riding by the headquarters of Ameritrade in the wonderful state of NE.I have been reading your threads for the past 3 months and always wondered why the constant stream of venom flowed in your threads.To me it bordered on a person possess with a mission.Correct me if I am wrong ,but are you an ex employee of this company who now has the mission of bashing it in any manner or forum. Thanks for clearing this question?

      • Tom,
        So you think the company would be better off spending a mint supporting a fancy HQ building (or perhaps a trading palace in Manhattan, eh)?
        And BTW, the facility in Belleview is the call center, not HQ.
        And you should see the headquarters of BRK--talk about a dump (at least from the outside)
        Guess Warren would rather make money than waste it on fancy buildings whose ROI is generally a big fat zero!

      • Thanks for the reply - good to see that there are still some rational folks out there. I completely agree with you that this advance ( and the move of equity sensitive shares such as online brokers) smacks of the 1999 mania. Though not as insane as then, that was an opportune time to short and I believe we are at a similar, though less extreme enviornment now. Any pullback in the overall market will once again punish the typcial retail investor, which will slow trading volumes and lead to a magnified pull back in online brokers (which are pricing in an immediate return to the late 1990's unsustainable trading volumes.

        PS - I like your ideas on the puts - with implied volatility in the low 60's it is possible to earn some nice premium.

    • tsjaxson,

      Nice job, you are now down over $.09 as of this post. Their eps growth is going to be much higher due to an increase in retail volume. Each month, the volume has increased.

      • 1 Reply to unloved_tennisball
      • Oh my goodness, will I be able to withstand a loss of 0.09 per share? I may need to sell my home to meet a margin call...

        I should have expected such a simplistic response from a message board. I honestly don't know why I even try to elicit rational, educated thoughts from these sites.

        FYI - I have AMTD hedged with what I believe to be a more reasonably valued issue and am actually up on the overall postion, but I suppose you would not understand anyway...

        Best of luck on your long...

 
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