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No. of Recommendations: 12
"Even at this price there is considerable risk in owning Doral shares imo

Why not find a better investment?" - TMFAdmiral

I do not want to influence anyone to buy or to sell Doral stock. But, this statement makes no sense to me. Isn't the reward usually given to those who take the most risk? Isn't that the name of this game? Risk is in the eye of the beholder.

So, the real question here is how much reward exists for the amount of risk. And, isn't the real risk here what is unknown? If the revised statements were already available, we would know the numbers that management will stand behind. Those numbers will be published in the near future and we will see what has changed and by how much and in which years. The full explanation will be given. The price can go up or down drastically based on what is finally reported.

In my original evaluation I could see that Doral had grown at a CAGR of 30% since it was founded in 1990. However, from 2000 until 2005, the price took off at a CAGR of over 50%, which was not reasonable to me. The reported numbers showed it was true due to the I/O strip evaluation and we now know this was wrong. But, if I take out the premium that was reported for the I/O strips, the actual growth rate still follows a growth rate exceeding 28%! The company has experience excellent growth even without the accounting errors.

I know that higher costs of borrowing will slow a lending organization's growth, but it is not like growth of real estate in Puerto Rico is going to stop and Doral will stop making profits by lending money. They can still grow at an impressive rate in my opinion. Doral still has some good positive attributes that seem to have been ignored completely in the market place.

Now, back to the risk. If we believe that all of this problem resulted from a misjudgement by management that was then approved by Price Waterhouse, the corrections will be made and the earnings can easily turn out to be adequate to support a significantly higher price...there may be a fine reward. If we think that management were just a bunch of crooks and their CPAs were idiots, then we could be in trouble.

I tend to think this was a accounting misjudgement that was rationalized by all parties. If they had guessed right on the direction of future interest rates, they would still be heroes. They guessed wrong and they have caused the existing problem. I agree that their desire to show wonderful earnings caused the problem. However, I tend to believe that it was an honest error. I believe that the majority of management is honest...even if they screw up on occasion and look dishonest. The ENRONs of business are few and far between.

In my way of looking at this, the risk is in not owning Doral. I could be completely wrong. So, read about and understand the business for yourself. I am not selling my DRL at these levels, but I would hate to have anyone else buy because of anything I might say. I can lose my own money but I surely do do want to lose money for anyone else.





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