Missed Opportunity in Cash America
I've been secretly studying the pay day lenders and wondering why in my "Pooring of America" scenario the charts were not better.
Cash America (CSH) is one of the handful of names in this space and
today we have the type of news I've been waiting for. And just like that the chart "improved". Similar peers include
Advance America (AEA) and
Dollar Financial (DLLR). I've been eyeing adding one of these to the portfolio - but a recent ruling by
Ohio capping rates at 28% created some unknoweable risk (other states could follow suit?). More and more of the American economic strata will, unfortunately, be turning to these types of outfits which are bordering on outrageous with their fee structure. Ummm... there is always a bull market somewhere.
- Pawnshop operator and cash advance provider Cash America International Inc. boosted its second-quarter guidance Monday, as economic woes and turmoil in the lending industry sent more consumers to its pawn shops.
- The news sent Cash America shares up $4.37, or 14 percent, to $36.47 in afternoon trading, after peaking at $36.90 earlier in the day. Over the past 52 weeks, the company's shares have traded between $26.17 and $48.86.
- Cash America said it now expects to post a second-quarter profit of 62 cents to 64 cents per share, up from previous guidance of 51 cents to 54 cents per share.
- Cash America said its pawn lending business benefited from higher-than-expected revenue from pawn loans and higher gross profit dollars on the sale of merchandise.
- In addition, the company said its online cash advance product offering posted strong revenue growth and lower-than-expected loan losses. (online payday loans? Now that's scary - you don't even need to show up anymore even though there are 100s of these places now sprouting up)
- Cash America also said Monday that it has not yet closed any of its locations in Ohio as a result of a new state law there that caps payday loan interest at 28 percent. The company said in May that the change in state law could force it to close up to 139 of its Ohio locations. (for those unfamiliar with this type of business - many times the interest rates run in the 100s of % - I've seen up to 500%)
- Payday loans are short-term, unsecured loans offered to cash-strapped consumers that typically mature in two weeks or on the borrower's next payday. The loans are often priced at a fixed-dollar fee, but the underlying annual interest rate is usually near 400 percent or more. (I cannot stress again, the typical blog reader does not realize what a good sized portion of our populace has been doing the past decade to get by, and now it will start going upstream to higher and higher income strata - these companies also cater big time to the very underpaid military; many times these shops are sitting right outside a military base)
But nevermind this type of evidence - the government reports say everything is fine and the economy shows little signs of stress. And inflation in food/oil while a bit worrisome doesn't really matter in the big picture. And once again the good news is unlike the 70s, workers cannot demand higher wages... "great!"
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