Luxor Capital, a hedge fund with $3 billion in assets under management which is run by Christian Leone, has disclosed ownership of 1.2 million shares of Altisource Portfolio Solutions S.A. (NASDAQ:ASPS) in a 13G filed with the SEC. This gives Luxor 5.0% of the total shares outstanding. We track quarterly 13F filings from hedge funds and other notable investors as part of our work developing investing strategies- we have found, for example, that the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year- and so by using our database we can see that the fund has bought all of its currently held shares since the beginning of 2013 (see Luxor’s largest holdings from the end of December).
Altisource Portfolio Solutions S.A. (NASDAQ:ASPS) is a $2.1 billion market cap providing services related to the management of mortgage loan portfolios. In the first quarter of 2013, the company experienced a 7% increase in revenue versus a year earlier with net income increasing by a similar amount. Altisource earns a large share of its revenue from mortgage loan originator and servicer Ocwen Financial Corporation (NYSE:OCN), and some of its past growth has come from Ocwen’s acquisitions; if Ocwen Financial Corporation (NYSE:OCN) continues to grow in this manner then we imagine that the company would continue to benefit.
At current prices, Altisource Portfolio Solutions S.A. (NASDAQ:ASPS) trades at 20 times trailing earnings, making it apparent that investors do expect considerable earnings growth going forward. However, Wall Street analysts are so bullish that they consider the stock very undervalued at these levels: consensus earnings forecasts imply a forward P/E of only 11 and a five-year PEG ratio of 0.3. We don’t think that investors should necessarily take those projections at face value, but a PEG ratio that low does leave a lot of room for Altisource Portfolio Solutions S.A. (NASDAQ:ASPS) to underperform sell-side expectations and still prove undervalued at current prices. It’s also easy to see why Luxor would be so excited about the stock- it only needs to come close to analyst targets.
We’ve already mentioned Leone’s interest in the stock, and we’ve tracked other funds with interest in Altisource Portfolio Solutions S.A. (NASDAQ:ASPS) as well. Earlier this year Renaissance Technologies, whose founder Jim Simons is now a billionaire, had reported a position of 1.2 million shares. Check out Renaissance’s stock picks. Billionaire Leon Cooperman’s Omega Advisors had about 960,000 shares in its portfolio at the end of December after cutting its stake by 28% during the fourth quarter of 2012 (find Cooperman’s favorite stocks).
Peers for Altisource Portfolio Solutions S.A. (NASDAQ:ASPS) include Fiserv, Inc. (NASDAQ:FISV), Lender Processing Services, Inc. (NYSE:LPS), and Walter Investment Management Corp (NYSE:WAC). These companies are expected to improve their bottom lines over the next couple years as well: Walter Investment Management Corp (NYSE:WAC) is actually unprofitable on a trailing basis, with Fiserv and Lender Processing Services each featuring trailing earnings multiples of 20 or higher, but forward earnings estimates show all three companies in value territory or close to it. The highest forward P/E is Fiserv’s, at 13. However, Fiserv, Inc. (NASDAQ:FISV) saw its earnings decline by 11% last quarter compared to the first quarter of 2012 (revenue was up slightly); while Lender Processing Services, Inc. (NYSE:LPS) did grow its earnings, this was entirely due to wider net margins (and therefore probably not sustainable) as revenue fell 3%.
It’s interesting that analysts are so excited about Altisource Portfolio Solutions S.A. (NASDAQ:ASPS), to a much greater degree than the market. However, we’d note that in its most recent quarter there wasn’t as much growth as we’d normally like to see considering where the stock is currently trading. As a result, it’s probably best for investors to wait for another quarter or two of results and only buy the stock if it shows more positive signs for growth over the next several years.
Disclosure: I own no shares of any stocks mentioned in this article.