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Non-Tech : Aames Financial (AAM) - Undervalued or what???
AAM 10.640.0%Nov 7 9:30 AM EST
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To: Bill De who wrote (334)12/14/1997 11:51:00 AM
From: david wright  Read Replies (1) of 510
 
Leave it to Barron's to try to make headlines out of yesterday's
stories. This information has already been discounted in the prices
of all the sub-prime lenders. This doesn't mean that there won't
continue to be selling pressure until investor confidence returns
in the earnings projections.

This whole controversy over gain-on-sale accounting is just so much
b.s. If it was such a bogus method of estimation the analysts would
have abandoned it long ago since they are judged on their ability
to come up with reasonable numbers. The fact that the consensus
estimates generally agreed with the reported earnings for AAM
validates the method. In those cases when the estimates were wrong
due to increased refinancing, or sunspots, or whatever that is just
the way markets work.

How was it possible that the analysts could be off by 60% in predicting the earnings for Western Digital, for example? The initial assumptions were invalidated when Fujitsu decided to dump disk drives on the market and set off a price war.

Any estimation method is subject to the initial assumptions made
by the analysts. Gain-on-sale is just a way of creating a fixed
benchmark for relative comparisons but can't guarantee the final
outcome. There is nothing sinister about this as Barron's seemed to
imply.

As I mentioned in my previous post even discounting the estimates
for '98 and '99 by 40% AAM is still below fair value. That doesn't
mean that the market is always rational enough to see this. If it
was Barron's would be out of business.
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