The Motley Fool: A branch-less bank
The Motley Fool Take
If you’re looking for a relatively small company with a good chance of strong stock-price appreciation, consider BofI Holding (Nasdaq: BOFI), an online-only bank. It’s profitable and growing fast - and partly due to disputed allegations of wrongdoing against it, seems like a bargain right now.
The bank has more than tripled its revenue and earnings in four years, and its last quarter featured its loan portfolio growing by 30 percent, its deposits swelling by 38 percent and earnings growing by 54 percent - driven in part by a partnership with H&R Block.
Particularly impressive is its efficiency ratio, a key metric for banks, which was below 32 percent. (Low is good.) For comparison, U.S. Bancorp’s efficiency ratio last quarter was 55 percent, and that was an industry-leading number among big banks. The low ratio is due to the fact that BofI runs a branchless operation, giving it a low cost structure and allowing it to offer both higher interest rates on deposits and attractive financing terms.
Regarding the allegations, management has said, “We will address the multitudinous deficiencies with this frivolous lawsuit in court.” It has also offered a close look at its relatively low-risk loan portfolio.
With a price-to-earnings (P/E) ratio recently below 10, BofI’s shares should be of interest to long-term investors with some risk tolerance. (The Motley Fool owns shares of and has recommended BofI Holding.)
Ask the Fool
Q: Why do stock prices rise and fall from day to day? - A.K., Batavia, New York
A: A stock’s price will, over the long run, reflect the value of the underlying company. As the company grows and becomes worth more, its stock is also worth more - and vice versa.
Over the short term, though, stocks can move due to many meaningful or meaningless reasons - or no reason at all. Here are just some reasons a stock may move: new products or services, good or bad earnings reports, Wall Street upgrades or downgrades, valuable contracts landed or lost, management shake-ups, big-name investors buying or selling shares, media coverage, other stocks in the same industry (or the overall stock market) rising or falling.
And: lawsuits filed or won or lost, good or bad news regarding a competitor, the prospect of legislation affecting the company’s future, changes in supply or demand for the company’s offerings, rumors that the company might buy or be bought by another company, or simply people expecting big things because the industry is “hot.”
Ignore short-term volatility and focus on your companies’ health, progress and long-term growth prospects.
Q: What’s an 8-K report? - P.M., Grand Rapids, Michigan
A: It’s a document the Securities and Exchange Commission (SEC) requires companies to file whenever certain special events have occurred since they last filed their comprehensive annual 10-K report. These events are ones that have a significant impact on a company’s performance or financial health, such as mergers, layoffs, plant closings and court awards or penalties.
To see if a company has had any 8-Ks filed lately, look up its filings at the SEC website: sec.gov (click on “company filings” in the upper right corner).
My Dumbest Investment
My dumbest investment decision was allowing my husband to manage my money. We had a divide-and-conquer approach: He handled money, while I handled the kids, the household and vacations. He quit his job (without my agreement) and used my money to start his own business, while lying to me that he had investors. I guess it was too tempting, and I was not paying attention. Never again will anyone ever tell me how to invest my money.
I have four kids who are on their way to college soon, and I am nearly wiped out - retirement and all. I would have caught various mistakes he made, had I been watching the accounts. The lesson for wives, kids and anyone is: Know your investments, know your accounts and know your own money. - M., online
The Fool responds: Many couples split responsibilities, with only one of them managing the money. That’s a mistake, as the money-managing partner may not be very good at it - or, like yours, may be mishandling funds intentionally. It’s also bad because if the money-managing one dies (as often happens, because men generally handle finances and also have shorter life spans than women), the survivor may suddenly be struggling to learn where all the money is and how to manage it. Couples are best off when both parties know what’s going on with their finances and make decisions jointly.