Are These Credit Companies a Good Deal or 2008 All Over Again?
Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Ah, credit. Despite having ostensibly good credit, I can't get a loan to enhance my life. But I'm not bitter (and that's a lie), and I would never allow that to influence my consideration of credit companies (liar liar). Naturally, I will provide an honest review of the facts and the facts only with regard to these companies (yeah, after I find some asbestos pants). Now let's see whether I think it's wise to make a deal with these particular devils based on their operations and prices.
Orix (NYSE: IX) seems like it might just be a small, rapidly-swimming fish in a highly polluted pond. At a rather small $1.16 billion market cap and pulling 10% profit margins, it might just be a small company working hard to add value. I like how Orix is the largest leasing and most prolific conglomerate of financial services in Japan, and I adore how Orix has its hand in both the US and in high growth areas like Southeast Asia and northern Africa. While I don't see anything too special about Orix to suggest that it's the next amazing company, I don't see anything wrong with it either.
That's why I'm downright mystified that the market thinks Orix should be trading at 10% of its book value and only 1.07 times its trailing twelve month earnings. That seems downright crazy considering that the company has no awful press I could find, solid service offerings on three continents and serves a growing niche of middle class individuals and real estate entrepreneurs. While it's not a growth machine and doesn't pay a dividend, I like Orix.
Atlanticus Holdings (NASDAQ: ATLC) is a good deal larger but also seems to be doing reasonably well and trading relatively cheaply. I'm not a big fan of pivoting, but the company formerly known as CompuCredit sold off its payday loan joints and subprime credit card accounts in 2011 and 2012 before changing its name. So they're turning over a new leaf in the field of... well, it's the same old thing. They finance cars, provide credit and act as a debt collection agency. Not a lot of points for creativity there.
But I will admit to liking how they're running Atlanticus. The company is trading for 90% of book value and less than 2 times earnings, is pulling 15.4% profit margins and carries no short-term debt obligations. So it seems to have survived the Great Recession reasonably unharmed and to have gained some humility. Overall, I think it's okay. Though I wish it would pay a dividend since it seems to be in pretty good condition.
CapitalSource (NYSE: CSE) handles commercial lending and works mostly with companies that provide healthcare. As a REIT-lover I hate that CapitalSource was a REIT and stopped being one, now paying a "why bother?" .5%. I'm very impressed with how the founders plopped down a then-record $500 million to start the company but I'm not super-secure that that was only about 12 years ago. I appreciate that CapitalSource is very clear about its three business segments, is only trading at book value and 4.22 times earnings.
However... honestly, the more I read about CapitalSource the more I like it. They had the gumption to sell out of a bad hotel project when they saw it going sour (selling at a loss, no less) and foreclosed on the Manhattan Blue condo building when the payments stopped coming in. The company produces, underwrites and manages their own loans instead of just selling them the way everybody else does, and I really respect the old school approach. Truly awesome, and I'd buy it in a heartbeat if there were a dividend that was worth a crap. If you like owning solid companies and don't care about dividends, CapitalSource deserves a hard look.
pongun has no position in any stocks mentioned. The Motley Fool owns shares of CapitalSource. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!