A Favorite Stock, NICK

[DesertCat]

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I've been looking at this stock lately. Any recent thoughts, DC? What is your feel about the stock's true value, in $/share terms?

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I was overly optimistic when I first got into it. I thought they would grow earnings 15%+ for a long while. Instead I was seeing the peak of their cycle which distorted things. I still think they will grow 10%+, but realize they haven't even seen the worse the national economy could offer. Higher interest rates and unemployment would hurt them worse, though their customer segments are clearly dealing with higher unemployment now.

I take comfort in their conservative financials and management. Any DCF analysis would tell you that a 10x growth rate merits a 20 PE, but given their small market cap I doubt they'll get one until they are much larger. My guess is, barring a national recession, in two years they earn more than $1.50 per share and trade north of $15, maybe close to $20.

[midas]

DC:

Interesting stock, seems to be trading close to book value which would generally indicate a bargain. In any of these one product specialty financial companies you have to see if there is a "special sauce" ie why are they doing it better than everyone else?

Generally, companies like this that have cracked the code in terms of superior loan origination and risk mitigance trade for much higher values and if not would be an ideal takeover target by a large Finco like GECC (General Electric Capital).

You make want to check out CIT - which is currently trading below book and should rebound.

[DesertCat]

NICK has its special sauce, but its way too small to think it will be getting bought any time soon. The risk with these finance companies is they are reliant on short term financing. Nicholas has mitigated this over the last few years by reducing their debt to equity substantially so I don't think they will ever get their lines pulled, but its always a risk and this year has been brutal on subprime finance companies.

A similar high quality company in mortgages is DFC, and I just dumped most of my shares to take a tax loss cause I have no idea if they will be able to finance any more. Its brutal out there.

[SmileyEH]

Cat, wasn't NICK's credit line both increased and the rate cut last month? Seems like the bank consortium still has a lot of confidence in the company no?

[DesertCat]

Sure, but I still have a lot of my net worth in NICK and the way the credit crisis has gone I've learned to worry more.