A Look At Why World Acceptance Corporation's Stock Is Outperforming Its Peers

World Acceptance Corporation (WRLD) is an installment lender that generally makes loans at higher rates of interest to people with weaker credit. The company’s stock has performed strongly since the end of 2020, rising by around 112%.

At first glance, it seems obvious why the company’s stock has gone up. When COVID struck the U.S., many lenders feared a wave of defaults as borrowers lost their jobs and got sick. One April 2020 US News article described how “financial institutions around the world are bracing for consumers and businesses to default on outstanding loans.” Once investors realized that wave of defaults wouldn’t materialize due to government stimulus and a quick end to lockdowns in many states, it makes sense they would start buying the stock of lenders such as World. Moreover, we’ve seen a bull market in the past year, so it makes sense World’s stock would rise at the same time.

Though these arguments make sense, once we compare World to some of its peers, it becomes less obvious that they are the reasons for the stock’s rise...(Read More).

Revisiting My Articles On The Alternative Finance Industry - 5 Years Later

Five years ago, I wrote a series of Seeking Alpha articles about the alternative finance industry, which provides financial services to customers who have trouble accessing them from traditional sources. This series was inspired by Gary Rivlin's book about the industry, Broke, USA. In those articles, I considered topics relevant to an investor in the industry, such as competition, regulation, and future growth.

Much has changed in the industry since then. Some products, such as payday lending, have become less popular, while others have grown. The regulatory climate has changed. Thus, I wanted to revisit my original articles to see if their conclusions were born out by subsequent events. (Read More)

Understanding The Alternative Finance Sector Through Gary Rivlin's Broke, USA, Part 5 - Final Thoughts

In my article series about Broke,USA, journalist Gary Rivlin’s book on the alternative finance industry, I have written about the competitive advantages of an industry that lends money to those with few alternatives. However, I have also written about the risks of investing in such an industry, such as regulation, corporate misbehavior, and competition.

In doing so, some themes have come up again and again. Such themes have been, in my mind, valuable not only for alternative finance investors, but also for investors in general. They include the importance of pricing power and the threat of competition. They also include the strength of the pawnbroking model as well as the value of analyzing a company through its relationships with its lenders.

That said, one area of the alternative finance business which I have not discussed but which Rivlin goes into in much detail is the subprime mortgage business. I have intentionally not discussed that business, since much has already been written about it and its effects on the global economy in the past few years. That said, Rivlin’s book does have some interesting insights on subprime mortgage lending and how it relates to the broader alternative finance business, insights which I feel are useful for investors. (Read More)

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)