BUSINESS
Atlanticus Holdings Corporation provides credit and related financial services and products to customers the United States. It operates in two segments, Credit as a Service, and Auto Finance. The Credit as a Service segment originates a range of consumer loan products, such as private label and general purpose credit cards originated by lenders through various channels, including retail and healthcare, direct mail solicitation, digital marketing, and partnerships with third parties; and offers credit to their customers for the purchase of various goods and services, including consumer electronics, furniture, elective medical procedures, healthcare, educational services, and home-improvements by partnering with retailers and service providers.
INVESTMENT RATING
Reflecting future returns on capital that are forecasted to be above the cost of capital, ATLC is expected to continue to be an important Value Builder.
Atlanticus Holdings has a current Value Trend Rating of B (Positive).
This rating combines very contradictory signals from two proprietary PTR measures of a stock’s attractiveness. Atlanticus Holdings has a very high Appreciation Score of 90 but a slightly negative Power Rating of 39, producing the Positive Value Trend Rating.
Atlanticus Holdings’ stock is selling well below targeted value. The current stock price of $33.06 compares to targeted value 12 months forward of $121.
Atlanticus Holdings’ very high appreciation potential results in an appreciation score of 90 (only 10% of the universe has greater appreciation potential.)
Atlanticus Holdings has a Power Rating of 39. (This slightly negative Power Rating indicates that ATLC’s chances of enjoying attractive investment performance over the near to intermediate term are only average.)
Contributing to this slightly negative Power Rating: recent price action has been slightly unfavorable. Offsetting factors are earnings estimate behavior for ATLC has been slightly favorable recently; and the Personal Credit Institutions comparison group is currently in a modestly favorable position.
INVESTMENT PROFILE
ATLC’s financial strength is above average. Financial strength rating is 68.
Relative to the S&P 500 Composite, Atlanticus Holdings Corp has both Growth and Value characteristics; its appeal is likely to be to Capital Gain-oriented investors; the perception is that ATLC is higher risk. Relative weaknesses include: high stock price volatility, high financial leverage, and high earnings variability. ATLC’s valuation is low: low dividend yield, low P/E ratio, and low price/book ratio. ATLC has unusually low market capitalization.
CURRENT SIGNALS
Atlanticus Holdings’ current operations are eroding. Return on equity is falling, reflecting: falling asset utilization; declining pretax margin; falling tax keep rate; and falling leverage.
Atlanticus Holdings’ current technical position is very strong. The stock price is in a 2.6 month up move. The stock has appreciated 37.2% from its prior low. The stock price is above its 200 day moving average which is in an uptrend.
ALERTS
Atlanticus Holdings Corp (NASDAQ: ATLC). Extremely significant negative changes in investment behavior have recently occurred: the stock’s recent price decline challenged its longer term uptrend, and negative upside/downside volume developed.
Significant negative changes in Atlanticus Holdings Corp (NASDAQ: ATLC) fundamentals have recently occurred: significant quarterly sales deceleration occurred, and significant quarterly earnings deceleration occurred.
The stock is currently rated B.
Atlanticus Holdings Corp (NASDAQ: ATLC) stock rose slightly by 0.2% on 2/26/24. The stock closed at $33.06. However, below average trading volume at 70% of normal accompanied the advance. The stock has declined -4.3% during the last week and has been weak relative to the market over the last nine months.
CASH FLOW
In 2022, Atlanticus Holdings experienced a significant decline in cash of -$73.4 million (-14%). Sources of cash were lower than uses. Cash generated from 2022 EBITDA totaled +$241.8 million. Non-operating uses consumed -$7.5 million (-3% of EBITDA). Cash taxes consumed -$14.7 million (-6% of EBITDA). Re-investment in the business amounted to -$505.2 million (-209% of EBITDA). On a net basis, debt investors contributed +$309.3 million (+128% of EBITDA) while equity investors removed -$97.2 million (-40% of EBITDA).
Atlanticus Holdings’ Non-operating Income, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by stability for the Atlanticus Holdings Peer Group. In most years, Atlanticus Holdings was in the top quartile and lower quartile. Currently, Atlanticus Holdings is above median at -3% of EBITDA (-$7.5 million).
Atlanticus Holdings’ Cash Taxes, %EBITDA enjoyed a very strong overall uptrend over the period. This improvement was accompanied by a similar trend for the Atlanticus Holdings Peer Group. (Since 2020 Cash Taxes, %EBITDA has decelerated very sharply.) In most years, Atlanticus Holdings was in the third quartile and top quartile. Currently, Atlanticus Holdings is above median at -6% of EBITDA (-$14.7 million).
Atlanticus Holdings’ Business Re-investment, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Atlanticus Holdings Peer Group. (Since 2020 Business Re-investment, %EBITDA has experienced a very sharp decline.) In most years, Atlanticus Holdings was in the lower quartile and top quartile. Currently, Atlanticus Holdings is lower quartile at -209% of EBITDA (-$505.2 million).
Atlanticus Holdings’ Debt Investors, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by stability for the Atlanticus Holdings Peer Group. (Since 2020 Debt Investors, %EBITDA has experienced a very sharp recovery.) In most years, Atlanticus Holdings was in the top quartile. Currently, Atlanticus Holdings is upper quartile at +128% of EBITDA (+$309.3 million).
Atlanticus Holdings’ Equity Investors, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by stability for the Atlanticus Holdings Peer Group. In most years, Atlanticus Holdings was in the second quartile and top quartile. Currently, Atlanticus Holdings is lower quartile at -40% of EBITDA (-$97.2 million).
Atlanticus Holdings’ Change in Cash, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by an opposite trend for the Atlanticus Holdings Peer Group. In most years, Atlanticus Holdings was in the top quartile and second quartile. Currently, Atlanticus Holdings is substantially below median at -30% of EBITDA (-$73.4 million).
Atlanticus Holdings’ Cash, %Revenue has enjoyed a very strong overall uptrend over the period. This improvement was accompanied by a similar trend for the Atlanticus Holdings Peer Group. (Since 2019 Cash, %Revenue has accelerated very sharply.) In most years, Atlanticus Holdings was in the top quartile. Currently, Atlanticus Holdings is at the upper quartile at +92%.
PROFITABILITY
Atlanticus Holdings’ return on equity has improved very significantly since 2014. The current level of 26.7% is 1.71X the low for the period and is -72.3% from the high.
The key to the story for ATLC is a very strong positive trend in pretax operating return significantly offset by a very strong negative trend in non-operating factors.
The productivity of Atlanticus Holdings’ assets declined over the full period 2013-2023: asset turnover has suffered a very strong overall downtrend that accelerated very sharply after the 2019 level.
More than offsetting this trend, however, pretax margin enjoyed a very strong overall uptrend that decelerated very sharply from the 2021 level.
Non-operating factors (income taxes and financial leverage) had a significant negative influence on return on equity.
Atlanticus Holdings’ return on equity is upper quartile (26.7%) for the four quarters ended September, 2023.
Operating performance (pretax return on assets) is at median (4.9%) reflecting asset turnover that is lower quartile (0.17X) and upper quartile pretax margin (28.5%).
Tax “keep” rate (income tax management) is below median (78.8%) resulting in after tax return on assets that is at median.
Financial leverage (leverage) is at the upper quartile (6.89X).
GROWTH RATES
There are no significant differences between Atlanticus Holdings’ longer term growth and growth in recent years.
Atlanticus Holdings’ historical income statement growth has been lower than balance sheet growth. Revenue growth has fallen short of asset growth; earnings growth has fallen short of equity growth.
Annual revenue growth has been 18.1% per year.
Total asset growth has been 29.3% per year.
Annual E.P.S. growth has been 52.7% per year.
Equity growth has been 67.7% per year. (More recently it has been 296.4%.)
No consensus growth rate forecast is available for Atlanticus Holdings.
Relative to the Atlanticus Holdings Peer Group, Atlanticus Holdings’ historical growth measures are consistently top quartile. Revenue growth (18.1%) has been upper quartile. Total asset growth (29.3%) has been upper quartile. Equity growth (67.7%) has been upper quartile. E.P.S. growth (52.7%) has been at the upper quartile.
Consensus growth forecast is unavailable.
PRICE HISTORY
Over the full time period, Atlanticus Holdings’ stock price performance has been volatile and exceptional. Between April, 2013 and February, 2024, Atlanticus Holdings’ stock price rose +794%; relative to the market, this was a +182% gain. Significant price moves during the period: 1) December, 2021 – December, 2022: -63%; 2) July, 2020 – August, 2021: +686%; 3) May, 2018 – January, 2020: +698%; 4) August, 2015 – May, 2018: -56%; 5) October, 2014 – February, 2015: +117%; and 6) May, 2013 – October, 2014: -65%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of 6.7% is slightly above median relative to the S&P 500 Composite.
In addition to being slightly above median relative to S&P 500 Composite, current annual total return performance through January, 2024 of 6.7% is at the upper quartile relative to Atlanticus Holdings Corp Peer Group.
Current 5-year total return performance of 55.2% is upper quartile relative to the S&P 500 Composite.
Through January, 2024, with upper quartile current 5-year total return of 55.2% relative to S&P 500 Composite, Atlanticus Holdings’ total return performance is upper quartile relative to Atlanticus Holdings Corp Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, ATLC’s overall valuation is quite low. The highest factor, the ratio of enterprise value/revenue, is above median. Ratio of enterprise value/assets is at the lower quartile. Ratio of enterprise value/earnings before interest and taxes is lower quartile. Price/equity ratio is lower quartile. The lowest factor, the price/earnings ratio, is lower quartile.
Relative to Atlanticus Holdings Peer Group, ATLC’s overall valuation is low. The highest factor, the ratio of enterprise value/revenue, is upper quartile. Ratio of enterprise value/assets is below median. Price/earnings ratio is lower quartile. Ratio of enterprise value/earnings before interest and taxes is at the lower quartile. The lowest factor, the price/equity ratio, is near the lower quartile.
Atlanticus Holdings has a major value gap compared to the median valuation. For ATLC to achieve median valuation, its current ratio of enterprise value/revenue would have to fall from the current level of 5.43X to 3.08X. If ATLC’s ratio of enterprise value/revenue were to fall to 3.08X, its stock price would be lower by $-72 to $-39.
For ATLC to fall to lower quartile valuation relative to the Atlanticus Holdings Peer Group, its current ratio of enterprise value/revenue would have to fall from the current level of 5.43X to 2.36X. If ATLC’s ratio of enterprise value/revenue were to fall to 2.36X, its stock price would decline by $-94 from the current level of $33.
VALUE TARGETS
Reflecting future returns on capital that are forecasted to be above the cost of capital, ATLC is expected to continue to be an important Value Builder.
Atlanticus Holdings’ current Price Target of $121 represents a +265% change from the current price of $33.06.
This very high appreciation potential results in an appreciation score of 90 (only 10% of the universe has greater appreciation potential.)
Notwithstanding this high Appreciation Score of 90, the moderately low Power Rating of 39 results in an Value Trend Rating of B.
Atlanticus Holdings’ current Price Target is $121 (-49% from the 2022 Target of $238 but +265% from the 02/26/24 price of $33.06). This dramatic fall in the Target is the result of a +22% increase in the equity base and a -58% decrease in the price/equity multiple. The forecasted decline in return on equity has a very large negative impact on the price/equity multiple and the forecasted decline in growth has a very large negative impact as well. Partially offsetting these Drivers, the forecasted decline in cost of equity has a very large positive impact.
PTR’s return on equity forecast is 17.5% — significantly below our recent forecasts. Forecasted return on equity enjoyed a dramatic, erratic increase between 2014 and 2022. The current forecast is significantly below the 2019 peak of 2908%.
PTR’s growth forecast is 24.0% — significantly below our recent forecasts. Forecasted growth enjoyed a dramatic, steady increase between 2018 and 2022. The current forecast is significantly above the 2018 low of 8%.
PTR’s cost of equity forecast is 12.0% — slightly below recent levels. Forecasted cost of equity suffered a dramatic, erratic increase between 2014 and 2022. The current forecast is well above the 2017 low of 4.1%.
At Atlanticus Holdings’ current price of $33.06, investors are placing a positive value of $2 on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 40.0% per year, and a return on equity of 30.7% versus a cost of equity of 16.1%.
PTR’s 2024 Price Target of $121 is based on these forecasts and reflects an estimated value of existing assets of $28 and a value of future investments of $93.
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