A fickle market may soon provide investors with an opportunity to cash in on payday lender and pawnshop operator Cash America (NYSE:CSH).
The company's fourth-quarter earnings report significantly exceeded analyst revenue forecasts while coming in $0.02 per share below profit predictions, and the market is selling off shares of the company by as much as 10% because of first-quarter guidance that was below further expectations. Where the market is looking to pawn off the stock, I'm looking for a chance to get some good returns.
Revenues grew by 26% in the quarter, coming in strong at $215 million, well ahead of the $193 million analysts had estimated. Results were helped along by the inclusion of the company's recently acquired online operation, CashNetUSA, which helped bolster short-term cash advance fees, which were up 80% from last year. Profits were also up for the quarter, rising 32% over last year to $21.7 million. The raw data is here in my Fool by Numbers article.
The biggest hit was in operating expenses, which rose 32%, partly because the acquisition cost the company more, but also because pawnshop retail sales were up less than expected. The pawnshops wrote a total of nearly 916,000 advances for a total of $351.9 million, or $384 each on average. That's up only 2.4% from the $375 average advance written last year, despite the inclusion of CashNetUSA. The loss provision was also higher than anticipated by about $1.5 million.
The investor opportunity comes from second-quarter and full-year guidance. Analysts had been predicting that Cash America would continue its upward trajectory, as other payday lenders like EZCORP (NASDAQ:EZPW) and First Cash Financial have been doing. It was forecast that Cash America would turn out $0.67 per share in profits on $186 million in revenue. The company says that's too high because of tax season.
When its customers get their income tax refunds, Cash America says they typically use the proceeds to pay off outstanding payday loan balances. That's actually prudent financial management on the part of customers, but it's also going to reduce the demand for new payday or pawnshop loans, so the company predicts earnings will be in the range of $0.60 to $0.64 per share. Meanwhile, for the full year, profits will be around $2.45 to $2.55 a stub. Although that actually raises Cash America's bottom-line estimates, it also puts it firmly in the range of the $2.50 per share analysts were expecting. Those loss provisions mentioned earlier should be remedied, too, as the tax refunds should help with collections.
This is giving Cash America the chance to look even better in the second half of the year, and that should bring the opportunity for greater price appreciation after the sell-off. Cash America just isn't quite there yet.
|
Trailing P/E |
Forward P/E | |
|---|---|---|
|
Advance America |
16.3 |
12.8 |
|
Cash America |
20.9 |
15.4 |
|
Dollar Financial |
188.8 |
12.9 |
|
First Cash Financial |
24.7 |
14.2 |
|
EZCORP |
23.1 |
15.4 |
|
QC Holdings |
50.3 |
18.4 |
Cash America still trades at the top of its industry's multiples, so the sell-off in share price could actually be a welcome development, since an easing up on price in this still-growing segment may provide a chance to get in at a reasonable price.
Advance America is a recommendation of Motley Fool Inside Value. Take a 30-day guest pass to view all the market-beating picks in the service and see why Advance America has garnered a four-star rating in the new Motley Fool CAPS investor-intelligence community.
Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.
