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New Century Financial Corporation stock analysis

New Century Financial Corporation( NASDAQ: NEW) is a real estate investment trust (REIT). Founded in 1995, this mortgage finance company provides first and second mortgage products to borrowers nationwide throught operating subsidiaries New Century Mortgage Corporation and Home123 Corporation.
For further information, including SEC reports and stock history, please follow this link.

NEW as a solid earnings history, with an historical EPS growth rate of about 22%; very low debt and it pays regular dividends on a quarterly basis.

In the current analysis all data will be provided using an expected EPS growth rate of 20% ( lower than the historical of 22%). The return rates are calculated using the stock price of $39.8 (25/11/2005)


1st SCENARIO - P/E= 15 (Optimistic - even thought half of the maximum P/E of the last 5 years)

5 year Return Rate = 47,39%

An investment of $10,000 will be worth about $69,564 in 2010. A 15% Return Rate will still be possible until the $134.5 barrier.



2nd SCENARIO - P/E= 7,5

5 year Return Rate = 28,31%

An investment of $10,000 will be worth about $34,782 in 2010. A 15% Return Rate will still be possible until the $67 barrier.



3rd SCENARIO - P/E= 5 (the current P/E)

5 year Return Rate = 18,32%

An investment of $10,000 will be worth about $23,188 in 2010. A 15% Return Rate will still be possible until the $44,85 barrier.



4th SCENARIO - P/E= 3 (Pessimistic - the lowest P/E of the last 5 years)

5 year Return Rate = 6,83%

An investment of $10,000 will be worth about $13,900 in 2010. However, if you want a 15% Return Rate, you would have to buy the stock at $26.9 per share.

FINAL NOTE:

We believe that this stock as a great potencial. According to our analysis, even if you opt for a very prudent view, a relevant gain will still ocurr. It's true that since the beginning of November the stock as run up more than 20%, yet it's still possible to buy it above the $44 barrier, which is a very reasonable scenario.

Thank you for your time.



Honest investment analysis.


This post first appeared on The Long Term Investor, please read the originial post: here

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New Century Financial Corporation stock analysis

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