Recent News From World Acceptance Corporation Indicates Worrying Operating Trends At The Company

In my most recent article, I discussed how installment lender World Acceptance Corporation’s (WRLD) current situation offers an opportunity to investors. In March 2014, the Consumer Financial Protection Bureau, or CFPB, sent the company a Civil Investigative Demand, or CID, asking about its lending practices. This caused the company’s shares to fall nearly 30% in the course of a few days.

Since then, the company’s share price has been roughly flat. As I put it in my last article, it is in a sort of “limbo”—too high if the company’s business model is illegal, as short sellers argue, but too low if the company is fundamentally sound. In the short run, this situation will only be decided when the CFPB releases the results of its investigation.

In the long run, however, if the CFPB does not shut down the company, World Acceptance Corporation’s share value will be governed by its operating results. Those operating results have shown some worrying trends over the past several quarters. (Read More)

Uncertainty About World Acceptance Corporation's Future Offers An Opportunity To Investors

In my most recent article, I described how installment lender World Acceptance Corporation illustrates the risks and rewards of investing in the alternative finance industry. On the one hand, the company embodies many of the industry’s best traits, such as rapid growth, high returns on investment, and pricing power. On the other hand, the company’s main business line of installment lending has come under increasing competition. Moreover, it has been accused of building its entire business upon the misbehavior of improper lending.

Most seriously, World Acceptance Corporation is currently under investigation by the Consumer Financial Protection Bureau, or CFPB. The company received a Civil Investigative Demand, or CID, from the CFPB in March 2014 asking for information about the company’s business practices. Some short sellers believe this investigation will lead to severe penalties, or even bankruptcy. On the other hand, it is possible that regulators will only give the company a slap on the wrist, such as a small fine, or let the company off altogether.

I believe the large distance between these two possibilities offers an opportunity for investors. (Read More) 

World Acceptance Corporation Illustrates The Risks And Rewards Of Investing In The Alternative Finance Industry

In my article series about Broke, USA, journalist Gary Rivlin’s book on the alternative finance industry, I have described how Rivlin illustrates both the risks and rewards of investing in the industry.

On the one hand, businesses such as payday lenders, pawn shops, and rent-to-own companies have strong growth opportunities, high returns on capital, and pricing power. On the other hand, such companies are affected by government regulation that threatens to curtail their returns or even shut down their businesses. This regulation is, of course, in part because the alternative finance industry has a reputation for corporate misbehavior, such as lending practices that encourage borrowers to enter a debt spiral. Finally, the many strengths of the industry have also drawn many competitors, who threaten to erode the industry’s once high shareholder returns.

Few companies illustrate these risks and rewards like World Acceptance Corporation (WRLD), an alternative finance lender that makes installment loans, generally to those with poor credit. (Read More) 

Understanding The Alternative Finance Sector Through Gary Rivlin's 'Broke, USA': Part 4 - Competition And The Price Of Gold

In my two most recent articles reviewing Broke,USA, Gary Rivlin’s book on the alternative finance industry, I have written about what are probably the best known threats to the industry: regulation and corporate misbehavior. I believe that many of those who refuse to invest in the alternative finance industry refuse because of those risks. They fear that government regulation, such as interest rate caps, will end the industry’s high returns. They are unnerved by the industry’s risk of misbehavior. Such misbehavior includes not only obviously illegal activities, such as fraud and illegal collections practices, but also questionable if legal activities, such as lending in ways that encourage borrowers to enter a debt spiral.

However, I believe that it is often not the obvious risks that are the most important to an investor’s returns, but rather the ones that people are unaware of. As I wrote in my article about regulation, alternative finance companies have consistently found ways to work around regulation. Even persistent accusations of misbehavior have not kept companies in the industry from outperforming the overall stock market year after year.

Rather, I believe it is the risk of competition, one that I feel many investors have failed to consider, which may be the most dangerous to the alternative finance industry’s returns. (Read More)