DRL [Archive]

**dchamber** Thu Feb 16, 2006 10:27 pm

DRL
Any thoughts on DRL?

Their P/E is now 3 but there average is 10.4. They have hard a recent earnings increase but if I average earnings for the last 3 years to get the P/E it is 4.13.

Their book value is 12.97/share and the share price is 11.76.

The current earning yield is over 30%.

The ROE for the last 5 years is 23%.

The book value has been steadily increasing for the last 10 years years.

The ROE, ROA, and ROC is better than the industry average for the last 5 years.

I don't see a lot of problems with the stock and it seems very cheap. Looks like there was a SEC investigation last year. I'm not sure if it is still going on.

**blast_investor** Thu Feb 16, 2006 11:13 pm

Hi dchamber:

Here is the place that you can not use a method such as "average earning" to value a financial stock Doral Financial (DRL). A financial company can easily manipulate earning, book value, or return on equity to make a number whatever you love with a tool called: "derivative".

This stock DRL obviously did this and was caught.

Here is my old article on this issue:

Derivative Risks of Financial Stocks

My take on this is that I am going to be honest with myself, I would admit that I am not able to understand the business behind the stock and pass on. I would focus on my circle of competence.

I believe most individual investors do not have capability to understand this stock DRL. Just pass on if one can not understand it.

**blast_investor** Thu Feb 16, 2006 11:19 pm

My investment style is focused style with only 10 stocks in a portfolio. Therefore I have to understand business before I invest for every stock pick.

I do not invest like other fund mangers or investment newsletter authors with large amount stocks , 20 to 50 stocks or more for diversification. They can afford not to understand the business for stock picks, I can not. Portfolio with 30 or 50 stock picks of course do not have same requirement as I do. They could put a stock like DRL without understading it, their style of large diversification allows that.

To understand a financial stock, simple metrics such as return on equity or PE or PB won't cut it.