Note: The original version of this article incorrectly said that Aaron Rents had engaged in stock-option backdating. It has been updated. The Motley Fool regrets the error.

Rent-to-own retailer Aaron Rents (NYSE:RNT) will report Q4 2006 financial results on Tuesday, Feb. 20.

What analysts say:

  • Buy, sell, or waffle? Of the eight analysts covering Aaron Rents, five say it's good enough to own it and rate it a buy, while the other three say "hold."
  • Revenues. Sales are expected to leap more than 18% to $340.6 million.
  • Earnings. Profits are expected to grow by a similar 17%, or $0.34 per share.

What management says:
Aaron Rents is the rock-wielding David in the rent-to-own industry. At a market cap of $1.3 billion, it's half the size of the giant Rent-A-Center (NASDAQ:RCII). It's got flashier ways than its competitor, too, sponsoring Michael Waltrip's NASCAR race car and his driver development program. Of course, it just so happens that the drivers Aaron's is sponsoring -- at a cost of $890,000 in 2005 and an estimated $983,000 in 2006 -- are the sons of a company director and division president. The company hopes to continue driving sales and increasing cash flows, which have been steadily rising on a quarterly basis over the past year.

What management does:
Management has been doing a pretty good job of bringing customers into its stores and, over the first two quarters of last year, had managed to increase comps over the year before. However, third-quarter comps growth fell off sharply both sequentially and year over year, and it will pay to watch how well they fare this quarter. Making the comparison will be tough, though, as the company had a huge fourth quarter in 2005 that saw same-store sales rise 11.5% over the 2004 period.

Margin

06/05

09/05

12/05

03/06

06/06

Gross

54.2%

54.0%

53.5%

53.4%

53.5%

Operating

10.7%

11.1%

11.2%

11.2%

11.8%

Net

5.3%

5.2%

5.1%

5.3%

5.8%
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:
While the business looks like it's running right, I don't find it an attractive company. I don't harbor any prejudice regarding its place in the unsavory rent-to-own industry; I just don't find management particularly shareholder-friendly. Using shareholder money to pay for the racecar dreams of a director's two sons smacks of viewing shareholder money as a personal piggy bank.

Aaron Rents has not attracted the same types of lawsuits that Rent-a-Center has, but it may ultimately feel the same pressure to change some business practices as a result.

Related Foolishness:

Aaron Rents has earned a four-star rating from Motley Fool CAPS, the new investor intelligence community. You can add your voice to the new stock-rating service by joining today. It's free!

Rent-A-Center is a recommendation of Motley Fool Inside Value. Rent the service risk-free with a 30-day guest pass and see if it's for you.

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.