Aames Financial (AAM) - Undervalued or what??? Message Board

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Non-Tech : Aames Financial (AAM) - Undervalued or what???

AAM 10.64

0.0%

Nov 7 9:30 AM EST

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To: Bill De who wrote (322)	12/7/1997 3:00:00 PM
From: Bankceo	Read Replies (2) of 510

Its funny you mentioned MVSI. It is my largest holding; about 5X larger than AAM. Look at the posts on MVSI on Fool and SI and you will see the history and why I expect a DOUBLE by the end of Q198. As far as AAM goes. The company is way undervalued vs. reported earnings. Buyers will come back after Jan1 because window dressing season is over. AAM did not have a great year--to say the least. The company is being perceived as a turnaround story. Management credibility will not be returned until 2 consecutive quarters of meeting expectations occur. Some people consider their reported earnings suspect. I don't now; thought I did before. Accordingly, I expect a slow gradual rise to the $16.125 level by next earnings; assuming a flat stock market multiple. Prepayment rates are due to people refinancing for a lower loan rate. This causes the underlying principal to decline faster and based on accounting convention, could result in a write-down of the asset on the book. Revenue is based on the NPV of the earnings stream based on expected paydown rates of principal. The offset is new originations for B & C credits are booked at HIGHER SPREADS as lower qualtiy borrowers will pay what they have to regardless of the interest rate direction. THUS, AAM will do well because they are an EXCELLENT ORIGINATION machine. One last point, AAM cleaned up thier books last quarter and I don't expect any significant further write-downs. AAM is a BUY at this level. I do see 18 month price target of 30 based on fundamentals as reported. THE CEO stated in the last conference call that they are actively in negotiations for sale. My guess is that the banks---probable buyers---are shying away as few can manage high risk businesses very well. Also, competitors are also now in a weakened position with reduced stock price. I do expect that to change NOW> AAM probably wants a sales price in the $30s--which is what the company is worth. However, nobody will pay it given recent events. I expect SERIOUS ACTION in the first quarter.

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