Short Thesis: World Acceptance (WRLD)
Harvesters,
Several days ago my interest in consumer finance led me to one of the largest battleground stocks in the industry - World Acceptance Corp ("WRLD"). Fittingly, the only thing worse than the name of this company is the morally deplorable strategies enforced by the management team - a strategy that the Orwellian-like CFPB is well aware of.
Over 60% of WRLD's profits are derived from products that the CFPB has already determined to be illegal (See Capital One, Discovery Financial, and American Express). In addition to this regulatory risk, the company is highly vulnerable to a change in refinancing laws - a regulation that has already been implemented and placed upon the payday loan lenders. About 84% of revenues come from refinancing, virtually no one new comes through the doors at WRLD. Per company records, about 7 out of every 10 loans are form serial refinancing.
Despite a dwindling loan book, the company has leveraged their toxic debt with a credit facility and has managed to buyback shares at an alarming rate - exacerbating the already dire situation. The management team is fully aware of this, after making record bonuses in 2013, the four highest paid executives have retired (one of them at the ripe old age of forty-three).
This short does not come without risk, notable short-sellers like Citron Research and Whitney Tilson have been active for almost six-years with this company. As we have learned from the Herbalife/Ackman battle, using regulatory action as a catalyst is not always the best idea. Furthermore, with a relatively low multiple and a high short interest, any form of good news could send this stock flying.
I am far form the first person to report on this stock, and most likely not the last. Either way, the story behind WRLD is as interesting as it is debatable. If you have any concerns or questions about his research, please do not hesitate to contact me via e-mail at taylor@pinecapitalpartners.com.
Several days ago my interest in consumer finance led me to one of the largest battleground stocks in the industry - World Acceptance Corp ("WRLD"). Fittingly, the only thing worse than the name of this company is the morally deplorable strategies enforced by the management team - a strategy that the Orwellian-like CFPB is well aware of.
Over 60% of WRLD's profits are derived from products that the CFPB has already determined to be illegal (See Capital One, Discovery Financial, and American Express). In addition to this regulatory risk, the company is highly vulnerable to a change in refinancing laws - a regulation that has already been implemented and placed upon the payday loan lenders. About 84% of revenues come from refinancing, virtually no one new comes through the doors at WRLD. Per company records, about 7 out of every 10 loans are form serial refinancing.
Despite a dwindling loan book, the company has leveraged their toxic debt with a credit facility and has managed to buyback shares at an alarming rate - exacerbating the already dire situation. The management team is fully aware of this, after making record bonuses in 2013, the four highest paid executives have retired (one of them at the ripe old age of forty-three).
This short does not come without risk, notable short-sellers like Citron Research and Whitney Tilson have been active for almost six-years with this company. As we have learned from the Herbalife/Ackman battle, using regulatory action as a catalyst is not always the best idea. Furthermore, with a relatively low multiple and a high short interest, any form of good news could send this stock flying.
I am far form the first person to report on this stock, and most likely not the last. Either way, the story behind WRLD is as interesting as it is debatable. If you have any concerns or questions about his research, please do not hesitate to contact me via e-mail at taylor@pinecapitalpartners.com.
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