Issue 11: Small/Midcap

This issue had a lot to offer. The publishing industry, as you might guess, has some pretty terrible economics behind it (except for those who also provide business services).  I found it quite interesting to see the companies that deal with buying up receivables at a discount and then trying to collect on them. They are similar to cash fronting businesses and they make a solid return every year while requiring little in the way of assets. Substantially all their earnings are retained to purchase even more receivables year over year- it’s an internal compounding machine within one of these businesses if done correctly. If these won’t be affected by financial regulation, a few of these could be great purchases today.

Interesting Businesses (not great, just interesting to me):

  • Bowl America Inc.- the three most profitable months for bowling alleys are January, February, & March (or at least for this company)
  • Educational Development Corp.- probably the single-most consistent business I’ve seen that doesn’t collect royalties. I’m curious what causes it…
  • Life Time Fitness Inc.- gym, growing at a solid clip even though it needs debt to grow (return on assets isn’t high enough to fund expansion alone at about 6%)

Interesting Prices (potential discounts):

  • Asta Funding- purchases receivables at a discount; not a great business but could be a good purchase at today’s prices
  • Beasley Broadcast- decent business, if it returns to previous profitability then we’ll see a good upswing
  • FirstCity Financial- if continues to grow receivables business, could be good situation
  • Global Cash Access- most interesting in issue if not affected by regulations

Great Businesses:

  • Ambassador’s Group
  • Credit Acceptance Corp.
  • Morningstar Inc
  • Net 1 UEPS Tech
  • Portfolio Recovery Associates
  • World Acceptance
  • VistaPrint

About Andrew Schneck

I am a value investor focused on misunderstood securities and industries, with an eye for long-term stock ownership.
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