Nicholas Financial NICK

An interesting interview and perspective of a young 18-yr old senior high school kid (Alex Bossert) about value investing. Link Alex Bossert: My favorite company right now is Nicholas Financial .  I have an extremely detailed analysis on my site .  Nicholas Financial is a very uniquely managed auto lender. Auto lending is a business that has been given a very bad name recently.  Nicholas is a great company trading at a very cheap price. They have very high quality underwriting unlike many of their competitors that focus mainly on the FICO score. They go further in researching the creditworthiness of their customers than their competitors do and employees are paid directly based on the quality of loans they originate.  They also hold all of the loans on their books with no securitizations. In boom times Nicholas is unwilling to make bad loans and pulls back on credit availability.  However, when the credit cycle turns down and their competitors suffer or go out of business, Nicholas remains solidly profitable and takes market shares away from competitors. While their competitors were going bankrupt last year, Nicholas’s profits declined from 20% return on equity to 10%. At the same time management was buying a lot of stock.   The company also over reserves for losses every year and is constantly accreting unrealized losses back into earnings.  The company was incredibly cheap last year and is still a good buy today. Last year the stock declined from $8 to $2.  I’ve read everything I can on Nicholas as well as researched their competitors.  Because I understood the business so well, I was buying a lot of stock at less than $5 per share when other investors were selling based on fear.  I knew it was extremely unlikely the company would have a margin call unless the economy got significantly worse than it was in March of last year.  Currently, book value is $8 a share and I think the company is worth around $15 per share.  The company should be able to earn around $2 a share in a few years and earnings are growing 10-15% per year. In the last ten years, shareholders equity has grown from $11 million to $88 million today.  Here is a quote from a CEO I’m very happy to partner with: “When yields on loans look temptingly high, we always try to remember that the return of your money is more important than the return on your money.”