TRADE INSTRUCTIONS
Date: May 4, 2017
Name: Bofi Holding
Symbol: BOFI (NasdaqGS)
Type: Open
Limit: Buy below $24.25

TRADE TARGETS
Holding Period: 4 months
Target Return: 18.6%
Annualized Return: 54.8%
Target Price: $28.25
Stop Loss Level: $22.25

COMPANY DESCRIPTION
BofI Holding, incorporated in 1999 as “Bank of the Internet” and based in San Diego, operates as the holding company for BofI Federal Bank that provides consumer and business banking products in the United States. In addition, the company offers prepaid card and refund transfer, debit card or ATM card, portfolio management, online bill payment, money transfer, overdraft protection, mobile banking, and text message banking services. Link to company website.

TRADE RATIONALE
Our Rapid Profits Matrix has had an on-again/off-again relationship with Bofi Holding over the past two years, ever since allegations by a disgruntled former employee surfaced that senior management did not disclose illegal banking activities by some of its overseas customers sent its share price careening. That makes its stock look cheap whenever it dips down on the newest class-action lawsuit filing, but then jumps back up on the latest quarterly earnings report which is usually strong.

Lately, the stock has been on a downswing due to a rumor reported by the New York Post on March 31 that the SEC and Treasury Department are investigating these charges, which has triggered another round of ambulance-chasing by Wall Street law firms (example). As a result, its share price has dropped from above $32 on March 1 to below $24 today.  

I don’t expect BOFI to recoup that 25% drop right away, but I do think it will gradually recover as investors focus on its impressive operating performance. Two weeks ago BOFI reported its highest net income ever for a quarter, increasing 14% over the same quarter last year. It is also benefitting from higher interest rates, which combined with its rapidly growing commercial lending unit should expand its profit margin during the current quarter.

This is a risky trade, but beneath the haze of as yet unsubstantiated allegations is a very solid bank that is grossly undervalued based on its financial performance. My guess is the company will eventually reach a settlement with regulators, at which time the stock should quickly bounce back up towards its fair value.  

Note: BOFI is optionable, but trades on very low volume so use limits when placing orders.