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Can Enova International Unlock Its Growth Potential?

Shares of online financial services provider Enova International Inc. (NYSE:ENVA) are up more than 20% since releasing its second-quarter earnings results last week. Even after these gains, shares still trade at an attractive forward price-earnings ratio of 6.87.

The trailing price-earnings ratio stands at about 11.20, which implies Enova is expected to experience significant growth in earnings for the next 12 months.

Key highlights from recent results

Enova recorded 13% growth in revenue during the second quarter, from $253 million in the prior-year period to $286 million. The higher cost of revenue, however, caused the gross profit margin to fall to 51.5% from 52%.

Nonetheless, the company's net income reported a robust increase as diluted earnings jumped to 73 per share from 52 cents in the year-ago quarter.

The company's earnings before interest, taxes, depreciation and amortization also posted a significant increase to $58 million, a 16% increase from $50 million last year.

During the earnings call, Chief Financial Officer Steve Cunningham attributed the company's revenue and earnings growth to an increase in its loan portfolio.

"Our results were driven by a 19% year-over-year increase in total company combined loan and finance receivables balances, credit performance improvement, continued cost discipline, and a declining cost of funds," he said.


Enova also provided positive earnings guidance for the third quarter as well as the full year.

The company is projecting adjusted Ebitda of $250 million to $270 million and adjusted earnings of $3.50 to $3.94 per share in 2019. Revenue is anticipated to be between $1.26 billion and $1.30 billion.

The positive second-quarter results and promising outlook for the year have propelled Enova's shares more than 20% higher since July 25. The company appears to be finally unlocking its growth potential after a choppy start to the year. Shares topped $30, but traded at just $20 on July 12 before recovering to the current level of $27.

Enova's strategy for the evolving credit market

The company is well positioned to capitalize on the evolution of the credit market. Its analytics business will benefit from the general growth of the e-commerce industry and online payments.

Enova provides analytics as a service to third parties to help them make decisions about their customers. With the growth of online-based enterprises, this service will become more crucial in the coming years as lenders adopt technologies that will help them improve their processes.

The company's business model allows it to offer asset financing services to online businesses through the preparation of receivable purchase agreements, loan application documents and loan marketing services, among others.

It has also targeted the more flexible short-term loans market, which provides expedited lending services to small businesses. Its subsidiary, CashNetUSA, provides borrowers with loans that are processed within 24 hours, which can be very beneficial for small online startups that need emergency funding.

From a valuation perspective, Enova looks cheap at a price-earnings ratio of 11.20. Its close rival, Curo Group Holdings Corp. (NYSE:CURO), has negative trailing 12-month earnings. When looking at the expected earnings per share for the next 12 months, however, Curo appears to be cheaper at a forward price-earnings ratio of 4.11 versus Enova's 6.87 multiple. This is partly due to Curo's 60% plunge in stock price since last September. In comparison, Enova's shares are down 24% from last year's peak.

In summary, shares of Enova have rallied since the most recent quarterly results were announced last week. The company posted a strong quarter, which was followed by positive guidance for the year. Given its strategic positioning in the online financial services market, it looks like the company is poised to unlock its growth potential in a highly progressive industry.

Disclosure: I have no positions in the stocks mentioned.

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This article first appeared on GuruFocus.