Atlanticus Holdings Corporation (NASDAQ:ATLC), a USD$32.59M small-cap, is a consumer finance company operating in an industry, which now face the choice of either being disintermediated or proactively disrupting their own business models to thrive in the future. Financial services analysts are forecasting for the entire industry, a strong double-digit growth of 11.20% in the upcoming year . Below, I will examine the sector growth prospects, as well as evaluate whether ATLC is lagging or leading in the industry. Check out our latest analysis for Atlanticus Holdings
What’s the catalyst for ATLC’s sector growth?
The threat of disintermediation in the consumer finance industry is both real and imminent, taking profits away from traditional incumbent financial institutions. Over the past year, the industry saw negative growth of -1.98%, underperforming the US market growth of 11.19%. ATLC lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook seems uncertain, with a lack of analyst coverage, which doesn’t boost our confidence in the stock. This lack of growth and transparency means ATLC may be trading cheaper than its peers.
Is ATLC and the sector relatively cheap?
The consumer finance sector’s PE is currently hovering around 14x, below the broader US stock market PE of 19x. This means the industry, on average, is relatively undervalued compared to the wider market – a potential mispricing opportunity here! Though, the industry returned a similar 12.20% on equities compared to the market’s 10.43%. Since ATLC’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge ATLC’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? ATLC has been a consumer finance industry laggard in the past year. If your initial investment thesis is around the growth prospects of ATLC, there are other consumer finance companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how ATLC fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If ATLC has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although its growth has delivered lower growth relative to its consumer finance peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. Before you make a decision on the stock, I suggest you look at ATLC’s future cash flows in order to assess whether the stock is trading at a reasonable price.