While investing, Fools come across stocks in industries that are hard to swallow, including tobacco, gambling, and liquor. These are also known as sin stocks, and there are even mutual funds to help you concentrate your portfolio in these areas. Ever heard of the Vice Fund
That brings us to pawnshops and payday lenders, also known as PDLs. In a nutshell, these businesses tend to be highly profitable; they charge clients high rates of interest, because the individuals who use the services are either unable or unwilling to go to traditional banks or lending institutions to obtain credit and cash checks. Ace Cash Express
In any case, within a few months, there will be one less publicly traded PDL in the market. On June 7, Ace agreed to be taken private by private equity firm JLL Partners and members of Ace's senior management team, including CEO Jay Shipowitz. The $30 offer represented a 14% premium from the stock's price on the day of the announcement; the price is currently just slightly below $30, implying that the market is fairly certain the deal will go through. Investors will know for sure once shareholders vote on the proposal, scheduled for Sept. 29.
Ace operates about 1,600 stores throughout the U.S., and approximately 86% are company-owned. On Tuesday, Ace released results for its fiscal year ended June 30, probably its last as a public company. Total revenue advanced 15%, but net income fell about 11%, attributed to a charge related to losses from Hurricane Katrina and another write-off as it stopped operating self-service machines at H&R Block
Since Ace's stock will soon cease trading, are there any other PDL or pawnshop companies to consider as investments? Fellow Fool Lawrence Meyers has spent a fair amount of time following the space. Last August he mentioned First Cash Financial Services
If you can stomach the business model, these companies mostly have plenty of growth opportunities and generate decent levels of free cash flow. The private equity interest at Ace confirms that certain parties have identified the appeal of these companies. If you're interested in learning more, click on any of the links in this article, including Meyers' commentary on socially responsible investing.
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Fool contributor Ryan Fuhrmann has no financial interest in any other company mentioned. Feel free to contact him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.