Model Portfolio teriksen:ESVF

It is hard to call 2007 a disappointing year for the company, but compared to the previous years growth slowed dramatically. Assets under management (AUM) grew from $3.7 billion to $4.4 billion, or 19%. During the last seven months of the year AUM was flat. This is not surprising since the market started declining in July. As a result the stock declined from around $100 per share to $73 at the end of the year.

2008 has started off exceptionally well. AUM has grown from $4.4 billion $5.5 billion as of May 31. That is 25% growth in just five months. The stock has risen to $90 per share. Obviously future AUM growth is difficult to predict, since it is related to specific fund performance and general market conditions, as well as Diamond Hill's marketing efforts.

I model out various growth rates to come up with the what is most likely and what are worst and best case scenarios. Due to the unforseen market correction that began last summer, my original eanings projection should be extended out another year. Based on the conservative assumption of AUM gorwth of $250 million per quarter, it looks DHIL would earn $5.00 to $5.50 per share in 2008; $7.00 per share in 2009; and near $8.50 per share in 2010. That should result in the stock price climbing to near $150 in 2009 and $175 to $200 in 2010 (about 20 times earnings). If AUM grows faster, the shares could reach those price targets even sooner.