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Novation Companies, Inc. Message Board

  • victussum victussum Apr 30, 2004 10:36 PM Flag

    Is NFI stock over-priced?

    Following is a glimpse of my own comparisons with NCEN, a larger sub-prime/non-conforming mortgage originator, and CFC----using various sources, Zachs,etc. This is an abbreviated summary of my private work product, thought to be valid, included on this board for study purposes only. I represent I could be wrong, but that I am not dishonest! I focus on three years' facts, 2001,2002 and 2003.

    In 2001 with a mean one month libor rate of 3.88% (compared to today's of about 1.10%), the percentage of net income to net revenue allocable to common across the board for these three companies was about the same as 2002 and 2003, when one month libor was much lower. Of course it had come down from 6.565% at ye 2000. As libor rises, due to improving consumer demand and renewed economic vigor, the "rush" to buy homes will increase, the refinancings decrease, although the demand to consolidate credit card borrowings may be constant. The spreads between the cost and price of loans for NFI will hold for many rate increases to come.

    The price:estimated growth rates of NFI, NCEN and CFC is to be noted, greatly suggesting NFI now has a low relative market price. NFI's and NCEN's are 2.55 and 10.61 respectively, using '04 to '05 expected growth. CFC has a negative growth rate. NFI presents a growth rate (14) more than twice its pe, where as the others' expected growth rates are less than their pe's.

    The expected dividend yield for 2004 against today's closing stock price, for NFI, NCEN and CFC, is 17.3% (a $5.60 dividend) , 1.9% and 1.5% respectively. (Income taxes reduce NCEN and CFC income to common, and NCEN is planning to elect REIT tax treatment in the future. For various reasons the growth of NFI has been and may continue to outstrip its larger competition, IMHO.)

    NFI's production of net income as a percentage of gross in 2003, 2002, and 2001 was 36%, 36% (with higher libor) and 33% (with libor higher still) respectively. This reflects greater efficiency than the others, reflecting better cost controls. NFI's net revenue grew from 83mm in 2001 to 299mm in 2003, 3.6 times. NCEN's and CFC's grew 3.3 and 3.4 times, respectively. During this time period NFI's percentage net revenue growth was accelerating each year while the others were contracting.

    NFI's branch system serves to generate profits, and its success is not measured in numbers of offices. This must be obvious. (As my high school geometry teacher taught me, "as any fool can plainly see." This was his theorem: "AAFCPS".) As unprofitable offices are cut, and expenses limited, overall profitability of this pruned but growing system increases, in both gross and net terms. As noted in the cc, this plan evolved quickly with the growth of the company. The tort lawyers in their class action suits would have their clients and the court believe that mere numbers of offices were what produced profits for NFI, and that the failure to disclose the elimination of some unprofitable offices worked a fraud on the investors. That dog won't hunt. Nor will the "juvenile" media reporting of this situation as if it were anything but normal and positive management of the company. AAFCPS! (Or, is this media not at all juvenile, but rather intentionally reckless?)

    It seems the drum beat of media abuse combined with class action suits, although simple nuisances at best, have taken a greatly disproportionate bite out of the NFI stock price when related to NCEN or CFC, which have not produced business results as good as NFI's, and whose relative prospects compared to NFI's fade as well. It was curious to see in SEC filings that NCEN and CFC are fighting various class-type claims and suits of greater materiality, IMHO, than the patently phony claims dealt NFI. Investigate, then invest! Do your own work. Respectfully, v

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    • <<the industry has a 5 to 6% return for other stocks and we were at like 8% around 70 so what is overbought

      if we are heading to a 7 8 $ divy as you say what is overbought?????>>

      I'm not a TA guy, but I cut my teeth, so to speak, on Silicon Investor, where it seemed everyone was nothing but. So to me, overbought is a term that just refers to some technical analysis indicators, like MACD and stuff...I have no idea whether it was technically overbought at that point. I suppose it was relatively speaking, but it has NOTHING to do with fundamentals. It's something that can reset in a short time frame. I do know we're oversold here. But I won't try to prove it. I'll leave that to Unagi_Boy if he feels like it.

    • lib

      My pt xacttly

      the industry has a 5 to 6% return for other stocks and we were at like 8% around 70 so what is overbought

      if we are heading to a 7 8 $ divy as you say what is overbought?????

    • Your statement is shared: <<<Provide a huge yield with a growing dividend and it looks like capital gains on the horizon. Obviously, there can be serious setbacks along the way when external factors, both legitimate(and I haven't seen any of those) and illegitimate are introduced.>>>
      HHill and other credible sources with analytical talent indicate higher payout for 2004 than my preliminary number of $5.60. But even at that number, with the bullish prospects ahead, the retentions of cash, a small market share, a recovering economy, one nevertheless has a good looking holding. I factor in a cost for media noise and abuse, and the cost of legal harassment. This cost will lessen with the new more proactive attempt by management and counsel at defending NFI from untoward and undeserved media rumor, gossip and slander. As one noted in a prior post, at $41 the MV of NFI is in the 1B category, a cutoff looked at in certain funds and by some serious investors. I know that some major brokerages will not permit their brokers to sell this stock because they don't like the noise, they are still suffering from their management mistakes in 2000-2001, and there is no large brokerage firm covering this company. They are super cautious. Small companies with no quick response team are easy targets for manipulation by media and class action claims of little or no merit, as in this case. This is a fact of life now. Needless to say the internet was not around when I worked on Wall St, and it is a ready tool for the rumor and gossip mill on both the buy and sell side.
      All of this can create investment opportunity for knowledgeable investors I find. I do my homework on the fundamentals and charts and develop a plan to live within this scene, as stocks get greatly overbought and oversold. As an investor and not a trader, I want to get in in these periods, and hang around for the long term of a building business like NFI. Longer term I have found the fundamentals of management, underlying business and execution will work for the long term investor. I believe this is present in NFI. However, like a Missourian the good motto is: Show me! Enjoy your weekend, v

    • Re: Is NFI stock over-priced? NO!
      by: bovinepoor (63/M/Heart of Texas) 05/01/04 02:44 pm
      Msg: 151462 of 151475

      Dividends paid this year, at least those declared this year, in MOO will be right around $7.55. That means if you had bought yesterday you will have received a 23% return on investment in not more than 9 months.

      Overpriced? Not by a long shot!

      bovine

    • And read the referenced post. This one recommended, too. And apparantly most of you have, but if you have NOT recommended the referenced post, rec it while you're there.

    • Hello There !!!

      I help NFI for a long time and sold 1/2 my holding around the high $60 area.

      I just did a buy in again at the 17% yeild area.

      This gave me a 50% stock holding and a 50% profit on the stock from teh run up.

      That is from the profits. My starting funds is all 100% returned.

      As of today the stock would be undervauled and to give you a link that is easier then most of the other sites I use would have to be quicken as it is easy for newer people to use and get the underline data faster. Below is a link to the data, but also click on some of the other links to find out more details on it.

      http://www.quicken.com/investments/seceval/?p=NFI&cmetric=intrinsic

      Good luck and happy trails :) !!!

    • Lib-Wake Up!!! You been hypnotized by MR Hill and have risked your IRA on a sinking ship.Confession is the first step at AA meetings.

    • To your excellent post, I would add the following comments. First off, I am long on both NFI and NCEN because I believe that the value proposition for both of these companies is superb. The analysts who follow these companies apparently agree with me for what that is worth.

      My favorite site for reviewing the analyst assessment of a stock is the nasdaq site. I like this because of the clarity of the portrayal of the information... Go there, and I think you'll see why I like the way the analyst information is shown here...

      http://www.nasdaq.com/earnings/analyst_summary.asp?mode=&kind=&symbol=ncen&symbo
      l=nfi&symbol=&symbol=&symbol=&symbol=&symbol=&symbol=&symbol=&symbol=&FormType=&
      mkttype=&pathname=&page=analystinfo&selected=NCEN


      Note the 2004 EPS average EPS estimate for each is ... NCEN = $7.85 and NFI = $4.84. At the current price level for each, based on PEs alone, NCEN would have an advantage with a forward looking PE of 5.4 compared to NFI with a forward PE of 6.7. Both are dirt cheap though. However, and this is a big HOWEVER for me, NCEN is not yet a REIT so they do not pay a substantial dividend. They are converting to REIT satus, but that will not occur until December or so.

      Both stocks are rated "buys" on average. The two analysts who have rated NFI place the 52 week price target at $55/share, while the 5 analysts who follow NCEN place the 12 month price target at $57. So, on the basis alone, NFI has an advantage.

      At this moment in time, I am biased more toward NFI because the dividend is important to me. In fact, last week, I sold 1500 NCEN shares to buy 2000 more NFI shares, but I still own thousands of share of both.

      Since I a do not entirely trust analysts, I would also add that the EPS estimates provided by these analysts jive with both the current earning trends for both companies as well as with my own estimates and with the expectations which the companies themselves have set during their most recent investor presentations of this past week.

      There is clearly a great deal of fear currently priced into both of these companies. You all know about NFI's situation. NCEN is battling with investors disatisfaction with the process it has chosen to fund its REIT conversion. Additionally, some convertible bond holders are very unhappy with this convertion to REIT .. but that's a long story which I will not attempt to make here. The point is, these are both companies with excellent business models which are now very, very underpriced because of the amount of fear that is priced into the stock. When there is blood in the streets, is when it is time to buy! And yes, NFI may not yet be entirely out of the woods. But, while we are waiting for the clouds to lift... how bout that 16% dividend???? I know that many of you lost money on NFI recently because of this bear raid. But, when life gives you lemons, smart people learn to make lemonade! Now is the time to load up on NFI stock because doing so will provide an incredible dividend yield for years and years.. and, the stock will likely double from here over the next two years.

      • 1 Reply to starkyot
      • Starkyot: Thank you for your helpful comments and suggestions. I will follow up. My work shows the likelihood for a $5.60 (could be higher, and the recent increase was a tell) dividend payout for NFI in 2004. As an investor, I have been looking at forward statistics and work, dealing with probable NFI business during 2004 and going into 2005. Some of my shortened comments in my post dealt with forward indications, but I agree with your observations which deal with current facts and closer in timeframes, and in that sense the ratios you look at may be "more current" than mine. Basically forward indications call for slightly accelerating growth rates for NFI and slowing for NCEN, and this skews certain ratios I look at. Yes, NCEN (and CFC) both have produced good business results. Without the constant planned media and copycat tort lawyer attacks on their businesses reputation, NCEN's and CFC's stock price has not taken the disproportionate hit suffered by NFI. Yes, many times when there is "blood in the streets", BUY! Opportunity created for investors who have some patience. Thanks again, respectfully, v

    • is this one of the resident pumpers under a new and improved handle hoping to salvage whats left? I guess I would make up a new name if I was proven as blatantly wrong as these folks were, no agenda just be carefull. I was one that got caught up in the dividend hype and broke my own trading rules of double your money sell half. I decided I could hold out for that nice divie check. Guess I was wrong cause now my divie check isn't worth near what those share would have been worth. Live and learn, pumpers come in as many guises as the bashers do, they are just not as dull.

      • 1 Reply to chinookcook2000
      • One of Chinookcook's postings a few days ago on another board.


        "Well Telcowhiz, where is this 7 bucks you�ve been promising everyone? I put all my life savings into this thing after reading your excellent posts. But now I am really thinking I was duped by a pumper like the others have said. What is really the truth Mr. Telco? How many alias�s are you using."

        Sounds like you're losing a lot of money, not to mention you seem a bit paranoid. The whole world must be one poster with an infinite amount of aliases.

    • I applaud your research and your input. I can't stand it that some of the people on this board think that EVERYONE long on NFI was somehow influenced by the nfi-info site. I haven't read it although I did go out and scan to see what it was AFTER I had done other DD and already pushed the "buy" button. I bought for a second time before I looked at it as well. You show here that there is other info out there that can help a reasonable person make a reasonable decision to invest. Kudos!

      • 2 Replies to guessyour2000
      • There are many great sources for due diligence. nfi-info.net is one of them. The folks that bash the stock, or bash investors, or bash dirty & his site, are playing mind games. Research makes their rantings ineffectual, so they hope to undermine dirty in an attempt to undermine confidence the stock.

        I didn't even know about message boards like this until months after I was an avid purchaser/follower of NFI. I think most investors are like us in that. I pity the investor that bases decisions on anonymous opinions. Having said that, reading the posters on this board can augment the due diligence process nicely.

      • I don't know yet another new ID, sounds alot like patting one self on the back. Writing is the same structure, that kind of stuff. Be Carefull. To many people fall into a message board trap, long or short. Good luck and those that decive will hopefully get thier just reward. Seems to me this would be a good time to try to prop the price of a stock I got caught with my pants down in...JMO