Payday lender QC Holdings (NASDAQ:QCCO) will report fourth-quarter 2006 financial results on Thursday, Feb. 8.

What analysts say:

  • Buy, sell, or waffle? Six analysts keep tabs on QC Holdings; four of them say hold and two say buy.
  • Revenues. Revenues are forecast to rise 28% to more than $48 million.
  • Earnings. Profits, though, are expected to grow 129% to $0.16 per share.

What management says:
Establishing new payday loan branches is an expense common to all such lenders, and QC Holdings has been expanding rapidly. However, these new storefronts are now maturing and chairman and CEO Don Early notes that "(t)he branches we opened during 2004 and 2005 show incremental improvement as each month passes. As these newer branches mature, the company's earnings will benefit through higher revenues on a relatively consistent level of costs." The fourth quarter should continue showing those top- and bottom-line improvements.

What management does:
Getting a handle on those costs has been an expensive lesson for QC Holdings. While it was affected by new store openings, it also has incurred costs for takeover bids that were cancelled and from changes to the regulatory landscape as states imposed or changed the rules. The third quarter marked a turnaround period and illustrates what the company is capable of.

Margin

09/05

12/05

03/06

06/06

09/06

Operating

9.8%

6.9%

5.9%

4.6%

7.4%

Net

6.6%

3.5%

2.7%

1.8%

3.9%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
With a market cap of just $300 million, QC Holdings is one of the smallest publicly traded payday lenders, and one of the few players that hasn't branched out into other services. Motley Fool Inside Value selection Advance America (NYSE:AEA) is another that hasn't branched out, and it also happens to be the largest in the country, with a market cap of $1.1 billion. The field is getting crowded, though, as pawn shops expand more aggressively into payday lending. After some fits and starts, QC Holdings seems to have gotten some traction, undoubtedly from the agitation of Prides Capital Partners. The hedge fund owns 12% of the company and got its founder, Kevin Richardson, elected to the board of directors last year.

Having expanded too far too fast, QC Holdings suffered from early growing pains, but it should now begin to see the fruits of its labor. A forward multiple of 18 places the company in the upper levels of valuation among payday lenders. Couple that with a spotty record, and QC Holdings may be too richly priced.

Competitors:

  • Cash America (NYSE:CSH)
  • Dollar Financial (NASDAQ:DLLR)
  • EZCORP (NASDAQ:EZPW)
  • First Cash Financial (NASDAQ:FCFS)

Related Foolishness:

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Advance America is a recommendation of Motley Fool Inside Value. While critics may contend that payday loans are not a good value for your finances, the Fool's 30-day guest pass is, and it gives you full access to all of Inside Value's market beating selections.

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.