Back on December 5, 2013, I wrote the article "Altisource Asset Management: Significant Mispricing" in which I explained why I believed Altisource Asset Management Corporation (NYSEMKT:AAMC) should have substantial downside. The gist of the article was that AAMC was entitled to up to 50% of Altisource Residential Corporation's (NYSE:RESI) distributable cash flow, and thus it was worth up to around the same as RESI, except for the fact that it would also gain from further RESI dilution. I put the downside at 35%-99%. Since then, AAMC has declined around 50%.
I am going neutral in the name here, due to the reason that the downside has been realized and AAMC is now worth less, at a $900 million market capitalization, than RESI. And that doesn't even include the potential for further dilution at RESI providing additional returns for AAMC shareholders. It thus no longer makes sense to remain negative in the name as per the original thesis.
It needs to be said, however, that I remain skeptical of the accounting RESI uses to produce its GAAP earnings. The logic stated in my article "Altisource Residential Corporation: 'Mark To Model' Earnings" continues to apply - RESI shows earnings that are akin to an automaker accounting for profits from cars that are just rolling down the manufacturing line. At this point, there are at least reasonable doubts as to whether RESI will ever be able to show profits from actually renting properties - its rental properties continue to constitute just around 1/10th of its REO in the books.
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