Investing in Altisource Portfolio Solutions' stock carries excessive risk levels
In the realm of financial markets, Altisource Portfolio Solutions S.A. (NASDAQ: ASPS) has been making headlines, though not always for positive reasons. Let's delve into the company's recent performance and business model.
Despite a rise in foreclosures in 2025, the number remains 29% below the level recorded in 2019. This trend is indicative of a stabilising housing market, but it's essential to consider Altisource's reliance on foreclosure of properties for a significant portion of its revenue.
The company's net debt, which is calculated as total liabilities minus cash and receivables, stands at $196 million. This figure, interestingly, is approximately 60% higher than the market capitalization of the stock. This disparity has been a point of concern for investors, especially considering Altisource's high debt load.
The company's performance over the past decade has been less than impressive. Altisource has dramatically underperformed the S&P 500, with returns of -94% over the last decade compared to the S&P 500's +243%. Over the last five years, the company's returns have been -90%, while the S&P 500 has seen returns of +100%.
However, there have been some positive signs. Altisource posted earnings per share of $1.48 in the most recent quarter, marking the first time the company has posted a profit per share in the second quarter of 2025.
In an effort to diversify and reduce sensitivity to foreclosure rates, Altisource has expanded its renovation business to 22 states and launched a commercial real estate auction platform. These moves are part of the company's strategy to mitigate the risks associated with its core business.
Warren Buffett, renowned investor, has been critical of management practices that focus on EBITDA, as this metric excludes interest, taxes, and depreciation. Given Altisource's high debt and focus on EBITDA, this criticism holds some weight.
It's worth noting that operating income has not covered net interest expense in each of the last six years for Altisource, further highlighting the company's financial challenges.
The stock remains 90% lower than it was five years ago, a fact that may deter long-term investors. In fact, stocks that underperform the S&P 500 by a wide margin over the long run tend to have a weak business model.
The share count of Altisource has more than tripled over the last three years due to the high debt load of the company. This dilution of shares can potentially reduce the value of existing shares.
Despite these challenges, Altisource Portfolio Solutions S.A. has more than doubled this year due to improved business performance. The company has expanded its renovation business in the United States, Canada, and Australia over the past five years, indicating a commitment to growth and diversification.
In conclusion, while Altisource Portfolio Solutions S.A. has shown signs of improvement, its high debt, focus on EBITDA, and underperformance compared to the S&P 500 over the past decade raise concerns about its business model. For investors with a long-term perspective, the stock may not be a buy-and-hold investment. However, the company's efforts to diversify its business model and improve its financial performance are worth monitoring.
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