We closed this position on January 27, 2011. A copy of the associated Position Update report is here.
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4 replies to "Stock Pick of the Week: Sell/Short Discover Financial Services (DFS) – Very Dangerous Rating"
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I’m new to the site, and maybe I’m not getting this, but why does DFS have a “Sell/Short DFS-Very Dangerous Rating” above yet a “Very Attractive Risk/Reward Rating” in the valuation report as of 2/1/11?
Justin-
Excellent question. The big change in DFS’s rating is very rare.
Only a few times in the history of our ratings system (5+ years on 3000+ companies) has the rating of a company changed from Very Dangerous to Very Attractive or vice versa.
The change in DFS’s rating comes from a drastic turnaround in the financials of the business as reflected in their most recent 10-K. A few weeks after we highlighted DFS as a short for Stock Pick of The Week, the company filed a new 10K. Upon review of that filing, we found that the economics of the business had drastically improved – which drove the rating of the company from Very Dangerous to Very Attractive.
As mentioned above, such a large swing in the rating of a company is very rare, and has happened only a couple of times in the history of all our ratings on 3000+ companies.