Reminder: Sabrient is available to chat with Members, comments are found below each post.
Dark Horse Hedge – Buy/Writing World Acceptance Corp.
By Scott Brown at Sabrient, Ilene at Phil’s Stock World
World Acceptance Corp (WRLD) has been a profit-generating machine and is expected to churn out profits of $5.29 this calendar year, and $5.85 next year. We love to buy earnings cheap at Dark Horse Hedge, and WRLD, with a P/E of 7, is producing cheap earnings. Sabrient's Ratings Report gives WRLD a strong buy, with a value score of 92 and a growth score of 84.
From Sabrient's Ratings Report:
World Acceptance Corporation is engaged in the small-loan consumer finance business, offering short-term small loans, medium-term larger loans, related credit insurance and ancillary products and services to individuals.
Earnings and Revenue Update: For the quarter ended June 30, 2010, World Acceptance reported earnings of $18.7 million or $1.14 per share compared with $29.7 million or $1.76 per share for the prior quarter and $14.6 million or $0.91 per share for the same quarter one year ago. Revenues were $110.4 million for the quarter ended June 30, 2010 compared with $123.9 million for the prior quarter and $100.2 million for the same quarter one year ago. Last twelve months' earnings were $4.68 per share compared with $3.88 per share a year ago. Last twelve months' revenues were $449.5 million compared with $405.5 million a year ago.
Sabrient Analysis
Sabrient rates WRLD a Strong Buy for its excellent value and growth scores.
• Value: Sabrient rates WRLD as one of the strongest value stocks in the market with a Sabrient Value Score of 91.5. At its current price, WRLD offers excellent value based on last year's results and projected earnings. This makes the stock a prime candidate for the value-minded investor.
• Growth: An impressive 83.7 for the predictive Sabrient Growth Score is a reflection of the company's high earnings growth potential.
• Momentum: WRLD receives a Sabrient Momentum Score of 23.7, which puts it among the lowest Sabrient momentum rankings. The score is a composite measure of price, earnings and group momentum.
• Timeliness: This stock has a Sabrient Timeliness Score of 23.0. This is a composite measure of short-term and long-term price performance and long-term group performance.
While WRLD has high value and growth scores, its lower scores on momentum and timeliness reflect its relatively subdued stock price. We believe the price has room to increase based on its strong fundamentals.
We also like to acquire earnings-busting stocks at a discount using Phil's Buy/Write strategy. We can purchase half of the shares we would like to own for approximately $41.60 today, and then sell one call and one put with each with a strike price of $45 and expiration date of Jan. 2011. By SELLING both the Jan $45 2011 call for $1.90 and the Jan $45 2011 put for $5.20, we will lower our cost basis from $41.60 to $34.50.
BUY 100 shares of WRLD at $41.60
SELL 1 Jan $45 2011 CALL for $1.90
SELL 1 Jan $45 2011 PUT for $5.20
If WRLD is trading at less than $45 on the Jan. 21, 2011 expiration date, the call we sold will expire worthless and we will be obligated to buy another 100 shares of stock at $45.
If WRLD is trading above $45 on Jan. 21, 2011, the put will expire worthless, and we will be obligated to sell our 100 shares of stock for $45.
