Tuesday, September 30, 1997

FirstPlus Financial Group Inc.
(Nasdaq: FPFG)
Phone: 214-630-6006
Website: http://www.firstplus.com
Price (9/29/97): $53 5/8

HOW DID IT DOUBLE?

FirstPlus pitchman Dan Marino has had incredible success on the gridiron, but his fame as a star quarterback is not what's pushing up the performance of the company he represents. FirstPlus is growing rapidly through the expansion of its basic business and also through acquisition.

This combination has been golden as the company has enjoyed earnings growth greater than 200% the past three quarters while earnings per share have increased on average greater than 300% over the same time span. Put those kinds of numbers together with a P/E in the mid-teens and you have the fuel for a quick double.

BUSINESS DESCRIPTION

FirstPlus Financial Group is largely involved in the wholesale loan business, selling through banks and other finance outlets. The loans it writes, buys, services, and sells are primarily home equity, home improvement, and consumer finance loans. These wholesale loans account for about 80% of current business.

The company is now also engaged in retail lending through its own outlets that are located in California and throughout the country. On the retail side, the company engages in HLTV loans (high loan to value) -- loans that are greater than the underlying property value.

The company expects retail lending to increase as a portion of the company's business in the future.

FINANCIAL FACTS

Income Statement
12-month sales: $474.6 million
12-month income: $99.7 million
12-month EPS: $2.78
Profit Margin: 21%
Market Cap: $2173.2 million

Balance Sheet
Cash: $40.8 million
Current Assets: $1885.4 million
Current Liabilities: $1530.1 million
Long-term Debt: N/A

Ratios
Price-to-earnings: 19.3
Price-to-sales: 4.6

HOW COULD YOU HAVE FOUND THIS DOUBLE?

There was an ideal buying opportunity for this stock in the early spring when, due to difficulties in the low-quality loan sector, all specialty loan companies were dumped. However, a glance at the financial picture and a walk through the company's 10-K would have demonstrated that FirstPlus loans were not troubled.

Impressive quarterly earnings have been rolling in and have topped estimates as well. While the stock sat at $24 and change in early June, the YPEG valuation was, er, $99. Say no more.

WHERE TO FROM HERE?

Analysts are having a hard time keeping up with this juggernaut, and estimates continue to be adjusted higher. Currently, estimates for the coming fiscal year sit at $4.57 and long-term growth estimates are at 27% annually. Put those numbers together and you get fair value of $123 a share. Another double waiting in the wings?

Sometimes earnings growth is not the best way to value financial stocks. Return on assets (ROA) and return on equity (ROE) are also useful measures. In those arenas FirstPlus also shines, with an ROE of 36% and ROA of 9.6% -- both higher than industry averages. However, it needs to be noted that the assets of specialty loan companies are paper assets and, as such, loan defaults and pre-payments increase the risk of ownership of these shares.

While the incredible pace of earnings growth demonstrated over the past year is not sustainable, the current P/E of 19 seems to give an investor some room for error. These shares might be worth a look for the Foolish investor.

- Mark Weaver, MD, mweav@aol.com

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