— Isaac Newton Newton's statement and the saying that "on Wall Street history repeats every day," perfectly appear to apply in the case of Security National Financial Corporation (SNFCA), a holding company in the life insurance, mortuary and mortgage loans segments.
While it is not meaningful to go into many financial details at this stage, it is important to note that from 2007 to 2011 the company's top and bottom lines decreased from $209 KKU to $159 KK (-24%) and from $2.2 KK to $1.3 KK (-43%), respectively.
The quarterly figures from fourth quarter 2011 until third quarter 2012, show a clear reversal of this multi-year downtrend as total revenues surged from $48 KK to $64 KK (+33%) while PAT jumped from $0.8 KK to $4 KK (+374 %).
This most remarkable improvement in financials and hopes for even better results in the future, sent the stock to an all-time historical high of $15.39, i.e. a 13-fold increase from the 52-week all-time low of $1.17.
Despite these impressive results, the exponential rise of the stock price and general hopes for a solid recovery of the economy in general and the housing market in particular, it is mandatory to keep things in perspective in order to avoid falling for behavioral investing-induced group think and herd behavior.
Remember that "markets have a tendency to overshoot at both ends," as Warren Buffett put it. This not only goes for markets but also for market segments and individual stocks alike, as I would like to put it.
The savvy investor will need to carry out a sound reality check by looking at historical market and stock bubbles and by considering most importantly the following facts:
1. For the past 20 or more years (before the Sept.12 surge) the median stock price had only been about $2 with very few quick-lived highest historical peaks ranging between only $4 to $5.70.
2. During earlier housing and market boom times and real economic growth the above highs had never been exceeded, even when the underlying business was supported by real growth and not expected, projected and hoped-for growth.
3.The current short interest as of 31.01.2013 is a whopping 568 000 shares i.e. 91 times the pre-September surge average short interest.
Now it is simply a matter of asking yourself whether the past 20 years were not really representative of the company's real intrinsic value or whether the expected growth projections and the new sky-high stock price signal the beginning of a brave new world and a new era with history ("Maybe history does not repeat, but it certainly rhymes," as Mark Twain said) not repeating itself.
Is it really different this time?
If you think so, you should buy.
If you don't think so, this represents an exceptional, historic short opportunity. Be quick to grab it!
Yes, investment decisions are really as simple as that.
But now comes the hard part: actually putting your thoughts into action and your money where your mouth is!
Disclosure: I am short SNFCA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.