On Thursday morning Nicholas Financial (NICK) will release its fiscal first-quarter earnings. My view is that NICK will do pretty much what it’s been doing, only more so.
My ballpark estimates are as follows:
Receivables: $235 million to $240 million
Gross yield: 24% to 25%
Interest Expense: 3% to 4%
Provision for Credit Losses: 4%, maybe less
Pre-Tax Yield: 9%
None of these numbers is a surprise. For the bottom line, I think NICK should make 25 cents a share for the quarter. But a precise estimate really doesn’t matter much. Even if they earn, say 22 cents a share or 24 cents a share, it still confirms the reason why I like Nicholas.
Here’s how I see it: NICK’s earnings report only needs to confirm two things—one, that’s it’s a thriving business and two, that it’s in zero danger of financial distress. In my opinion, these two points are unarguably true. I’d also add that they’re pretty obvious to anyone who has looked at the company. NICK’s portfolio is clearly improving and the company is pulling in a decent amount of money. It’s almost like a 13% bond that’s selling for less than par.
Still, the stock market doesn’t seem to agree. NICK is still trading below its book value, and by my estimate, it’s going for about seven to eight times forward earnings. That’s not just, it’s almost absurdly cheap.
Bear in mind how panicked the market can be. Just 16 months ago, NICK got down to $1.80 a share. I expect NICK to earn about $1.10 a share for this calendar year (note that their fiscal year ends on March 31). So the stock was trading at a forward P/E Ratio of less than two.
I’m confident that NICK will deliver the goods. The major concern I have is how the market will react. On this subject, well...you just never know. I’d like to think the market can see the facts right in front of its face. We’ll know more on Thursday.