Why Shares of Nationstar Mortgage Holdings Tanked Yesterday

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What
Shares of Nationstar Mortgage Holdings (NYSE: NSM) fell as much as 15% on Thursday after the company announced fourth-quarter results that were well short of Wall Street's expectations.

So what
As the following table shows, Nationstar's misses were not insignificant:

Source: YCharts, Nationstar Mortgage Holdings.

Because Nationstar did not provide numerical guidance for first-quarter or full-year revenue or earnings per share, the market is likely anchoring on these misses in assessing the company's likelihood of achieving the current consensus estimates. The consensus forecast for 2015 EPS is $4.31, but that could come down as analysts review fourth-quarter results for clues about this year (Sterne Agee downgraded Nationstar from buy to neutral this morning.)

However, investors might want to read the "Business outlook" section of the company's earnings release, according to which, "during the first quarter of 2015, Nationstar has entered into new commitments to acquire $35 billion of agency servicing assets, primarily from two counterparties. Assuming a 12% annual run-off, we have already replenished 95% of the servicing annuity and are well on our way to achieving our 10%, or greater, UPB [unpaid principal balance] growth target for the year."

Now what
Nationstar's shares are volatile. Just this past Monday, they rose 13% on the news that Nationstar had acquired the mortgage servicing rights on a portfolio of loans with an unpaid balance totaling $9.8 billion. As such, today's price drop only takes the stock back to last Friday's level. For a value investor, that volatility can be a source of opportunity. At first glance, the multiples Nationstar's shares trade on don't look outrageous; patient, value-oriented investors might want to look at this business.