A Bad Sign for the Economy
For those of you out there who missed the news, a company called Cash America, ticker CSH revealed to investors yesterday that they would be revising their second quarter earnings upward. Their expected results would exceed prior guidance.
The news whipped investors into a frenzy and on heavy volume, the stock price of Cash America shot up a bit over 14% in yesterday’s trading.
Why is this a bad sign for the economy? Cash America is a cash advance and pawn shop company. When times are good for them, I can only conjecture that it means that times are indeed bad for the rest of the country.
From the Associated Press:
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.
More people are getting payday loans and visiting pawn shops. The numbers don’t lie. This industry should be on the ropes in this country not posting significant gains.
State Caps are Working
Even with positive news for a company like this, I would stay far far away as an investor. There are a few bits of silver lining included in the press release. Several Cash America outlets are in the process of being closed in Ohio due to a new state law that caps interest rates at 28%. Even more store in California and Texas are being shuttered by Cash America this quarter.
Declining store numbers will eventually catch up with the company and outweigh the benefit of higher per store returns. The current 52 week high is above $48.
Better Than Expected for Now
At the very least, people are paying back their loans on time. “Lower-than-expected” loan losses means that for at least the moment, the new breed of pay day loan takers are responsible enough to pay back the loans they take. Either that or they are simply not yet been nudged off the cliff face of debt entirely.
There may be hope. Then again, this may be one more straw on the camel’s back. A few more and we may start having real problems.