Njord Wind

Brokerage Stocks: Trouble on the Horizon?

Did I say something "this company has pretty good visibility", and therefore the likelihood of them missing badly was poor? Being short OXPS at this price has terrible risk/reward, especially if your short thesis is: "I think they're going to miss".

Brokerage Stocks: Trouble on the Horizon?

The only forward looking numbers I cited were earnings - on a trailing basis P/sales and P/ebitda are at all time lows. Furthermore, this company has pretty good earnings visibility, at least into the next quarter. This is because they provide us with monthly updates on DARTs, new accounts, margin balances, etc. This means estimates for the current quarter already have 2 months of information built into them. I've got my own model for estimating earnings, it has performed quite well, and it's currently pointing towards the high side of analyst estimates for this quarter.

Could you please elaborate on the "current conditions" under which OXPS can't make more money? I've already pointed to the high correlation of OXPS revenues to CBOE volumes to show how it's quite easy to see revenues and net income increasing year over year. Your short thesis does go beyond "I've got a feeling", doesn't it?

Here's one thing to think about: How, exactly, does capital flee the market? Hint: It doesn't take the bus.

Brokerage Stocks: Trouble on the Horizon?

Whoops: Disclose needed - long OXPS.

Brokerage Stocks: Trouble on the Horizon?

Can't say I agree with your short thesis. I don't know a lot about IBKR and even less about SCHW, but I've spent a fair amount of time on OXPS. I've noticed their revenues (and, because of their very stable margins, net income) correlate very highly with quarterly CBOE volumes. The model could use a little work because I don't break out PFOF and interest income, which will be declining to flat in the current environment. However, 2Q08 CBOE volumes were up 27% versus the prior year period, meaning commissions and other brokerage income should remain strong. We've also seen DARTs, net new accounts and margin balances hang in very well during April and May, although admittedly June was a very bad month, and may have scared some people away. Furthermore, the retail investor has hung in thus far, and of course options can be used in either market direction. Bottom line is I've got several indicators pointing towards upside to the 2Q numbers. Do you have something you can point to besides "The stock and market have gone down and thus I don't think they'll hit numbers"? Not trying to be antagonistic, I'm just looking for a little more detail.

On another note, if you've been short these stocks for awhile,well done, good trade thus far. If you've just initiated the positions recently, however, I think you're in the wrong place. In addition to everything I mentioned above, OXPS is currently trading at all-time lows in P/Forward earnings, P/S, P/EBITDA, pretty much every valuation measure, and they numbers aren't even that high: 12X forward earnings and 7.7X EBITDA. Margins have remained steady. The stock has already fallen 37% this year (after a 49% rise in 2007); still, I think you missed your chance.