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Altisource Portfolio Solutions: Undervalued And Our No. 1 Short Squeeze Candidate For 2016

Summary

Short squeeze coming on super tight float.

Growth initiatives in place to stabilize 2016 and resume growth in 2017.

3M share buyback in place puts floor in price at current levels. Recent Insider buying of $1.7m in range of $25 to $28.

Company forecast revenues of $893 million and adjusted EPS of $6.00 for 2016.

PE will expand from 5 to 12 = $72 price target.

Altisource Portfolio Solutions

Altisource Portfolio Solutions (Nasdaq:ASPS) is a provider of software and analytical solutions serving mortgage servicing companies as well as financial companies within the real estate and financial sector. It is considered a specialty finance company and also has several website initiatives complementing their primary business.

What initially drew our attention to this company was an investment made by Leon Cooperman as he was buying around the $40s in December of last year. During an earnings conference call, he made a comment questioning the logic behind not aggressively pursuing a buyback when the stock was below $30. He appeared frustrated because during 2014, the company repurchased 2 million shares at over $100+ per share but was now sitting on their hands in terms of implementing an aggressive repurchase program. As the price was hovering around $25, we began initiating a position ultimately buying as low as $14. The company finally increased their repurchase program after receiving approval at a shareholder meeting in May of this year. The company began repurchasing shares aggressively in June, bringing its six month buyback to 1.6 million shares paying on average, about $28 per share. Their latest 10Q filing shows they still have 1.8 million shares available and will continue to buy back shares albeit at a slower pace.

We still do not understand why the company would slow down the buyback at current prices given the above. You would think that management would view this as a priority and be more aggressive, but the slowdown was confirmed during the earnings call comments. In addition, the company issued 750,000 shares for 3 acquisitions (Castleline, RentRange and Investability) making a portion of this year's buyback a wash. Despite this one issue that we disagree with, management continues to pursue and meet its goals on the four growth objectives below:

  1. Continue to attract clients to mortgage servicer related services
  2. Continue to grow their origination services and technologies business
  3. Expand their online real estate marketplace
  4. Continue to grow their rental and renovation services and technologies business.

On a positive note, insiders have purchased approximately $1.7 million in stock on the open market between $25-$28. Operationally, the company appears to be performing well exceeding analyst estimates on their last two...


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