Add Advance America, Cash Advance Centers (NYSE:AEA) -- the largest provider (by virtue of its 2,290 centers in 34 states) of payday cash advance services -- to the list of hot initial public offerings.

The IPO price of $15 a share was at the high end of expectations. The company will use the $180.6 million in proceeds from the 7.2 million shares it sold to repay debt.

What is surprising, at least to this analyst, is that the stock opened for trading at $20.50: a 37% gain. Why would anyone pay such a high premium for a company whose revenue for the first nine months of 2004 was up 13% while net income was down 6.5% from the year-ago period?

One reason is that the number of states allowing payday advances or small loans has grown from 16 in 1997 to 37 (plus the District of Columbia) as of September. As more states allow these services, Advance America will be ready to meet the demand.

But the company's auditors said there were significant deficiencies in its internal controls, and the company readily admits its business is subject to numerous litigation and regulatory proceedings. What a one-two punch -- yet the stock is trading up more than 37% from its offering price!

For the first nine months of 2004, Advance America served 1.2 million customers. The average loan, for 15.5 days, was $327, and the company charged an average $53 to provide or process the payday cash advance.

Why pay $53 for so little money? Faced with bounced-check fees, late payment fees, or other negative consequences, broke customers find the quick in-and-out service a value.

Advance America joins Bill Barrett (NYSE:BBG) and Foundation Coal Holdings (NYSE:FCL) as recent IPOs whose share prices have exploded in initial trading. Barrett's stock price has continued to rise while Foundation's has gone nowhere. Advance America's fate may not be as kind, based on the auditing and litigation issues it has.

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Fool contributor W.D. Crotty does not own stock in any of the companies mentioned -- but would consider traveling to a Sands casino resort.

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