World Acceptance Corporation - A Growth Opportunity

| About: World Acceptance (WRLD)

World Acceptance Corporation (NASDAQ:WRLD) offers short-term small loans, medium-term larger loans, credit insurance products, tax services, financial software, and ancillary products and services to individuals in the United States, and Mexico. WRLD's average gross loan made in fiscal 2011 was $1,134 with an average maturity of 11 months. The company services sub-prime borrowers in particular and during fiscal 2011 loaned $2.6B making it one of the bigger companies of its type in the U.S.

Recent Performance

Over the last 10 years WRLD has grown EPS from $1.00 to $5.63 representing a rate of almost 19%. Revenue of the same time has grown just under 14%. The difference between the revenue growth rate and the EPS growth rate has come about due to the combination of increased margins and share repurchases. $53M was spent on share-repurchases during fiscal 2011.

Looking at its numbers over the past 10 years, importantly the company's earnings growth, profitability, or margins did not suffer even slightly during the GFC. WRLD's 10-year performance has not only been impressive but remarkably consistent.

We like to see Free Cash Flow meet or exceed Net Income and for WRLD the total net income over the past 10 years was $471M while total Free Cash Flow over that time has exceeded $1B. WRLD is a wonderful generator of cash, which has allowed it to expand at a rapid rate (more on that below).

Quality Rating



The company scores an admirable quality rating of 70/100. Its net debt-to-equity score is poor, though its balance sheet is still reasonably strong with total assets of around $800M (of which goodwill is negligible) and total liabilities of around $360M. The company also scores poorly in terms of return on retained earnings, which is a function of its rapid expansion - opening new stores doesn't bear much fruit, relatively speaking, for the first few years until revenue from the initial loans issued is materialized.

Intrinsic Value



Regulatory uncertainty surrounds the company and the industry it is in. This regulatory uncertainty forces downward pressure on the share price, creating possible buying opportunities. Companies like WRLD provide an important service to those American people who do not have access to credit through traditional channels, so it is unlikely the regulatory uncertainty will materialize negatively on WRLD's business. We expect that the newly created "Consumer Financial Protection Bureau" will focus on preventing the sub-prime real-estate bubble from ever happening again, and look at ways to minimize unethical exploitation of the government student loan system. But concerned investors who have trouble sleeping at night during some uncertainty may want to wait for some clarity from policymakers prior to an investment in a company like WRLD.

WRLD Graph

The wonderful performance of WRLD over the past 10 years is clearly illustrated in the above graph. With huge scope for further growth (see below), this trend is likely to continue for many years. Now appears to be a reasonably good time to buy.

Investment Grade Table

WRLD Inv Gr Tble


WRLD ranks only at number 120 on the Investment Grade Table due to the relatively low margin of safety on offer. Investors need to consider also that Intrinsic Value is expected to rise significantly in the coming years.

Drivers of Future Growth

WRLD has been opening new offices at a hefty rate over the past 5 years. Fiscal 2011 saw 77 new branches open, an increase of 7.8%. The below illustrates the rapid rate of growth for the company in terms of establishment of new offices:

WRLD Offices


Fiscal 2011 also saw the company enter Wisconsin, for the first time, bringing the number of states where WRLD has a presence to 12. With so many states not yet entered, huge scope for growth still exists for the company. WRLD is also growing in Mexico, proving that its business model is successful outside of the U.S., which bodes well should it wish to expand into other countries.

WRLD's goal for 2012 is to open an additional 63 offices in the U.S. and another 10 in Mexico. It is uncertain how many offices the company will eventually have in the U.S., but with a business model that produces great profits as well as profitability, there is no reason why the company won't continue to expand geographically into many more states around the country.


Management clearly treats shareholders as owners of the company through the language in annual reports and other official documentation. And it has created a very successful business model, which allows for significant geographic expansion. The future looks nothing but bright for the company even considering the lingering regulatory uncertainty (which we see as a very low risk for WRLD). Investors may see a good opportunity at current prices to buy a part ownership in a fast-growing business.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in WRLD over the next 72 hours.