By Rick Pendergraft, Editor of Cabot Option Trader
From Cabot Wealth Advisory 3/28/11 Sign up for free Cabot Wealth Advisory e-newsletter
Astoria Financial (AF) is a savings and loan based in New York with 85 branch offices. AF has a short interest ratio of 9.2 with 7.55 million shares sold short according to the latest report. This is a pretty bearish level of short interest, which is good from a contrarian standpoint. Analysts are bearish as well, with three analysts rating the stock as a “sell,” 11 analysts rating the stock as a “hold” and three analysts rating the stock a “buy.”
Based on this sentiment, you would think the company was performing poorly, but when we dig into the financials of the company we find a different story. In its most recent earnings report, Astoria Financial showed year-over-year quarterly earnings growth of 192%! The quarterly revenue growth on the same basis was up 36% and the company has an operating margin of 36%.
Looking at the chart, we see that AF has been in an uptrend since the market lows in March 2009. The trendline formed by the lows over the last two years provides a layer of support and it is close to the same level as the 20-month moving average. The recent weakness in the overall market is providing an opportunity to enter a trade on AF at a better price.
Given the bearish sentiment toward Astoria Financial, combined with the positive fundamentals and the upward trend in the price, I can see the stock going up 50% or more in the next 12-18 months.
Rick Pendergraft
Options Analyst and Editor of Cabot Options Trader
Rick Pendergraft has spent over 20 years studying, trading and writing about the investment markets, specializing in derivatives investing, technical and sentiment analysis. Rick spent 10 years working for two of the largest financial publishers, Schaeffer’s Investment Research and Investor’s Daily Edge, before joining Cabot. His proprietary automated scan based on characteristics of past fast moving stocks produces a daily list of bullish and bearish stocks that is at the heart of the
Cabot Options Trader.