Altisource Q3 2013 update: they are shooting for the stars

Altisource continues to take on more debt to fuel its growth.  $70M was used to buy Equator, a company that makes software for mortgage servicing companies.  (Equator competes with Altisource’s REALServicing platform and Altisource’s Hubzu.)  Equator’s sellers are eligible for up to another $80M in earn-outs in the future.  Altisource also previously purchased mortgage servicing businesses from Ocwen.  On top of that, Altisource has been using debt proceeds to repurchase shares. I believe that the interest rate on the debt (5.75%+) is higher than the earnings yield (~3.5%) on Altisource stock.  The repurchases will only work if Altisource continues to grow its earnings.

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Altisource (ASPS) – Updated writeup

(This post is featured on Market Folly, a blog that tracks what top hedge funds have been buying/selling and why they do it.  Check it out!)

Altisource is a rapidly-growing business that is riding the trend of financial companies outsourcing their mortgage servicing.  The process of servicing mortgages has become more complex as the US government continually adds more regulations to protect homeowners from foreclosure.  The cost of complying with government regulations and creating automated systems to handle mortgage servicing is mostly fixed.  These economies of scale will likely push the industry towards consolidation.

Altisource has grown its revenues per share by an incredible 36%/year from 2008-2012 (see gurufocus.com for historical stats) and currently trades at a P/E ratio of 21.6 (at $97.36/share).  Its growth next year is practically guaranteed due to its unique relationship with Ocwen.  Its forward P/E is roughly 11.8 (according to Yahoo Finance).  I believe that Altisource is the best managed mortgage servicer in its field.

Altisource (ASPS) brief update

I’m excited about this company and this seems to be a stock that many people simply gloss over.  This is a fantastic business trading at a good price.  And it’s a financial company that you can actually understand.  They aren’t an investment bank with a book full of opaque derivatives.  They aren’t sitting on tail risk from bad insurance deals.  And they aren’t sitting on hidden losses from bad loans.  They do mortgage servicing and they’re really good at it.

Altisource (ASPS) – Part 4 – Reading the 10-K, etc.

This post gets into the financials and is my attempt at really analyzing this company.

Altisource (ASPS) – Part 3 – Industry overview and context

This part provides an overview of the mortgage servicing industry and why Altisource will be a winner in it.

I am not an expert on the mortgage servicing industry but here is what I understand of it.

Altisource (ASPS) – Part 2 – Insider behaviour

This post discusses:

• Home Loan Servicing Solution / HLSS (which I overlooked)
• William C Erbey – Chairman
• Robert D. Stiles – former CFO

Altisource (ASPS) – Part 1 – A spinoff / growth situation

A discussion of spinoffs and a shallow first pass at valuing Altisource.