Dave, I'd like to believe I've got a better way to look at these asset managers, but I'm not there yet.
Here's the rule: Asset managers are overvalued if you have to pay more than 2% of their assets-under-management for the stock.
Here are the issues:
1. I don't know anything about DHIL.
2. DHIL assets-under-management figure is growing almost enormously. The rule does not take into account how much assets DHIL might have under control by year-end '06.
3. As regards the rule above, there's no clarification of assets. There's a heck of a lot more money to be earned by firms in managing $1B in equity (stocks), than can be got in managing $1B of assets that comprise government bonds. So an all-equity firm should be valued much higher than an all-bond firm - with appropriate adjustments made for firms which have managers of both types. The rule doesn't do this though.
4. I'm a guy with opinions and now a rule. No references, no historical support, no nothin'.
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My cutoff point is actually less than 2%. But 2% will work here. 2% of $1.5B = $30M. Stock's at $53M (i.e. the market cap). Therefore, stock is more than fairly valued at current price.
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Stock's had a good run in past 12 months, assets under management could increase further, stock could scoot much higher. I'll use my rule though, and I'll pass. Jmo, I could be wrong. |
