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 World Acceptance (WRLD 0.79%) fell 10% today after the company reported a double miss on its fiscal second-quarter earnings.
So what: World Acceptance's quarterly revenue, at an even $150 million, was 8% better than the year-ago quarter but nevertheless below Wall Street's $151.9 million consensus. Earnings of $1.80 per share, however, came in far below the $2 consensus, despite recording a 5% year-over-year improvement.
Now what: World Acceptance CEO Sandy McLean struck a positive tone in the earnings report, noting that the consumer finance company continues to repurchase many of its shares -- of which 11% fewer are now outstanding than were available a year ago -- and that it continues to expand into new states and increase its loan balance.
However, concerns that economic headwinds are now blowing into subprime lenders overwhelmed these upbeat data points. Loans delinquent by more than 61 days increased from 4.2% in the year-ago quarter to 5.3%, and its loan loss provisions increased 18% to $38.2 million as a result. This is not a good sign for a lender, and despite World Acceptance's low P/E of 12, it seems that any potential investment will require a firm belief in continued economic progress.
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