The drop in price may have been unjustified, but how do we know that the price was not overpriced all along? Even the debt is fully paid after a couple years and the earnings turns around, what makes the company not a dying one? If the company doesn't acquire any other company in 2 years and assuming the revenue stream stays constant, will their leasing services + brandsmarts revenue stream be enough to generate above average profits to the shareholders, meaning that the market cap is worth more than 380 million (current market cap x1.1²). Sorry if it comes of as harsh, I'm just trying to justify the shareholder equity.
* Have you recognized any edge in the products/services they sell compared to their peers?
* What will drive the price up
* How can we verify that the BrandSmart is going to break-even this year? Can we verify that these 10 BrandSmart stores will generate enough cash for what they payed for the company?
Osse, thanks for reading and for the questions. Here are my answers:
* Aaron's biggest competitor is Rent a Center. The two are the clear leaders in the space. Aaron's tends to attract higher income customers than Rent a Center because the payment plans at Rent a Center tend to be shorter (and therefore more expensive) than they are at Aaron's. With respect to the other competitors, Aaron's advantage is both their size and their data. Data is a huge advantage because they offer a credit-like service, so predicting how likely customers are to pay is critical to their profitability.
* I'm expecting earnings to materially increase and for stock price to follow. Tightening credit conditions and/or a recession should increase demand and therefore earnings. Even if that doesn't happen, interest expense and restructuring expenses have been a huge drag on earnings. As debt is paid down and the company finishes restructuring in 2025, earnings should increase by $30-40m a year.
* We can't verify that. I'm just basing it on current expectations from management.
* I don't know how frequently customers continue to rent different products from Aaron's.
The drop in price may have been unjustified, but how do we know that the price was not overpriced all along? Even the debt is fully paid after a couple years and the earnings turns around, what makes the company not a dying one? If the company doesn't acquire any other company in 2 years and assuming the revenue stream stays constant, will their leasing services + brandsmarts revenue stream be enough to generate above average profits to the shareholders, meaning that the market cap is worth more than 380 million (current market cap x1.1²). Sorry if it comes of as harsh, I'm just trying to justify the shareholder equity.
Nice thesis.
Some questions that popped up in my head:
* Have you recognized any edge in the products/services they sell compared to their peers?
* What will drive the price up
* How can we verify that the BrandSmart is going to break-even this year? Can we verify that these 10 BrandSmart stores will generate enough cash for what they payed for the company?
* Churn-rate and turn-over rate of customers?
Side note: There is a write up from 2 and a half years ago that had a target price of roughly $50 (a bit optimistic): https://investmentideas.substack.com/p/spin-off-aarons-company-nyse-aan
Osse, thanks for reading and for the questions. Here are my answers:
* Aaron's biggest competitor is Rent a Center. The two are the clear leaders in the space. Aaron's tends to attract higher income customers than Rent a Center because the payment plans at Rent a Center tend to be shorter (and therefore more expensive) than they are at Aaron's. With respect to the other competitors, Aaron's advantage is both their size and their data. Data is a huge advantage because they offer a credit-like service, so predicting how likely customers are to pay is critical to their profitability.
* I'm expecting earnings to materially increase and for stock price to follow. Tightening credit conditions and/or a recession should increase demand and therefore earnings. Even if that doesn't happen, interest expense and restructuring expenses have been a huge drag on earnings. As debt is paid down and the company finishes restructuring in 2025, earnings should increase by $30-40m a year.
* We can't verify that. I'm just basing it on current expectations from management.
* I don't know how frequently customers continue to rent different products from Aaron's.