Here's what I see five years out.
Happy scenario: Both payday lending and internet lending businesses grow; company makes more than 75 cents a share, and trades for $12.
Moderate scenario: Competition increases, Co makes only $0.50 a share, and trades for $5.
Gloomy scenario: Payday lending prohibited in many states, Advance America's income drops drastically to $0.25 per share, and stock sells for $2.50.
In my opinion this stock is overdiscounted. To be conservative QCCO should maybe be a dollar or two lower, but AEA should be a dollar or two higher.
Gloomy scenario.2 - Durbin/Delahunt and Obama pass the 36% cap on all payday loans with no other fees attached, as they did for the military and then AEA goes tits up. I would suggest you read Obama's Presidential Platform.
Unless someone changed the Legislature when I wasn't looking, Local Law supercedes State Law, and State Law supercedes Federal Law. Payday lending is currently legislated at the State level in most cases. Obama cannot make unilateral change on payday lending although he could propose a review at each State level and begin orchestrating change over time.
We have the $0 scenario already. The point is this stock is already priced as if tits-up were 70% likely.
If you believe the $0 scenario is MORE than 70% likely, why not take a look at shorting? You could short this stock, or in the exact same business QCCO is trading as if nobody ever heard of the risk you mentioned.
Personally I believe most people look at the share price first and then make up their stories about risk. This stock is viewed as being shut down by Obama because it ran down, not the other way around. QCCO shareholders aren't scared because their shares are holding up better.
The gap is going to close, one way or another, and it's a big gap.
Your call on this company is close to dead on, but there is a gloomier scenario - enough states prohibit over the next few years that AEA just wastes away. But with that risk in mind, the compensation for this risk is great, how many 2 buck stocks offer an 11% dividend and a reasonable potential for appreciation. I think that over the next five years, a 20% annual return with appreciation is a reasonable bet. Note I said bet, so AEA should be no more than 5% of a sane person's portfolio.
"enough states prohibit over the next few years that AEA just wastes away."
Going nowhere on an 11% dividend isn't so bad though.
Lot more upside than downside. The stock is priced at a level where they assume the business wil disappear. overdiscounting risk right now.
Thanks for adding that, I think those are good points. The even gloomier case could happen. And I agree AEA is a gamble. Not a core holding.
But I think reasonable handicapping on the gamble comes out a lot higher than the current price per share.
Even if there are equal chances of getting $10, $5, $2.50 and $0. The average is $17.50/4 or about $4.38. Almost no matter what kind of numbers I stick in, I can't make the handicapping come out anywhere in the $1.80 to $3 trading range that it's been sitting in lately.
Meanwhile QCCO seems to be sitting somewhere between the "happy" and "medium" scenarios, and they have a similar record in the same business. One way or another I think that gap probably will close up a lot.
The funny thing is, if AEA does zoom up to $4-$5 one of these weeks, then suddenly lots of folks will want in at that price. I won't have to tell the story then ... but the easy double will be gone.