ASFI: Benefiting from the sub-prime meltdown

Posted Mar 28th 2007 3:45PM by Paul Tracy
Filed under: Forecasts, Good news, Bargain Stocks

Looking for a way to cash in on the sub-prime meltdown? Consider this: Since the beginning of 2007, Asta Funding (NASDAQ: ASFI) is now up an impressive +37%.

Asta is in the business of buying up non-performing consumer debts such as credit cards, unpaid utility bills and auto loans. The company buys these late or defaulted debts for pennies on the dollar from banks and other lenders, and it then turns around and tries to collect at least partial payments on the loans.

One of the concerns about this lucrative industry is that the prices companies like Asta must pay for loans are rising. Because consumer default rates have been generally low, the supply of non-performing loans has remained relatively low. Meanwhile, other companies have entered the business, driving up costs.

That means the recent sub-prime meltdown and rising consumer default rates are actually good news for ASFI. More defaults mean a deepening pool of non-performing loans suitable for purchase -- and an easing of prices. This spells an opportunity for ASFI to grab more business and fatten its profit margins.

At the moment, the shares are trading at less than 11 times next year's projected earnings, and analysts are forecasting a long-term growth rate of +14%. That gives the stock a price-to-earnings to growth (PEG) ratio of just 0.80. There is little reason for the company to trade at such a steep discount to its growth rate. A PEG of 1.0 implies a price of approximately $54, and there doesn't seem to be any reason the stock can't reach that level.

If you are interested in more analysis from Paul Tracy, you can find it at StreetAuthority.com

Tags: ASFI