It's even harder to directly compare World to Enova and Curo since those companies have had significant acquisitions and other business changes in the past several years that have affected their revenues and earnings. However, it's not a good reason for World's stock to have a higher valuation in the long run. Such a decline and then improvement might be a good reason for World's stock to outperform in the short run, since it's possible the stock has been recovering from an earlier depressed valuation. However, this is because World's earnings first dropped dramatically in the years before 2020, something which did not happen to Regional and OneMain. At most, it's true that the company's earnings have grown more dramatically since early 2020 than Regional and OneMain's earnings. However, it's clear that World's revenues and earnings haven't grown dramatically more than those of its closest peers. It's hard to make a perfect comparison between the three companies. The same can be said of OneMain Financial: In contrast, Regional Management's revenues have grown significantly over the same period: GrowthĪnother potential reason for World's outperformance is growth, but the company's revenues and net income have not grown significantly in the past several years: However, its peers with even higher returns don't have the same high valuations, which means World's valuation cannot be solely explained by its returns. In that context, World Acceptance Corporation does have a strong return on equity that could justify its high valuation. Both Regional and OneMain operate primarily out of storefronts, unlike Enova and Curo, which have significant online-only businesses. Notably, the company's valuation is much higher than those of Regional Management and OneMain Financial, its closest peers. On the other hand, World's peers have had even stronger performance:ĭespite having the lowest return on equity, World Acceptance Corporation has the second highest price to book valuation. However, the company's performance has clearly been strong. World's returns on equity are always highest in the quarter ending March 31st because its loan demand is seasonal. The company earned a return on equity of 22.3% in the past four quarters, including a 47.0% return on equity in the quarter ending March 31st, 2021: One plausible reason for World's outperformance is its high return on equity. In this article, we will examine each of these five possibilities to see which, if any, might have caused World's outperformance. Is there a regulatory reason why World might be outperforming?.Does World have a technological edge over its rivals?.Is World growing faster than its competitors?.Is World targeting an unusually attractive market segment?.Were World's returns unusually high, earning it a high valuation multiple?.I can think of five possible causes based on the company's business fundamentals: If we exclude macro factors from the explanation for World's outperformance, we are left with causes specific to the company. economy:īased on these charts, it is hard to believe World's outperformance is due to macroeconomic factors. The uniqueness of World's outperformance is especially clear when we consider a longer-term two-year time window that encompasses the entire period in which COVID has affected the U.S. Similarly, the bull market cannot explain World's massive outperformance over the broader market. Since World and its peers were affected more or less equally by the COVID factors I mentioned above, it is hard to attribute this outperformance to those factors. 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:Īs you can see, World has outperformed both its publicly traded peers and the S&P 500 in the past year. Moreover, we've seen a bull market in the past year, so it makes sense World's stock would rise at the same time. 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. When COVID struck the U.S., many lenders feared a wave of defaults as borrowers lost their jobs and got sick. The company's stock has performed strongly since the end of 2020, rising by around 112%:Īt first glance, it seems obvious why the company's stock has gone up. World Acceptance Corporation ( NASDAQ: WRLD) is an installment lender that generally makes loans at higher rates of interest to people with weaker credit. Alexander Schmitz/iStock via Getty Images
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