Dollar Financial (DLLR): Serving the 'underbanked'

Serving the "underbanked" segment of society has become big business and the leading firms in the group are in expansion mode. One of the biggest such companies runs the largest network of outlets in Canada and the U.K. and the second largest in the U.S.

Dollar Financial Corporation (NASDAQ: DLLR) operates nearly 1,300 financially-oriented service stores. Its customers are typically low to moderate income service sector earners, who don't use, or have access to banks. Services include check cashing, short-term consumer loans, money order/transfer products, reloadable debit cards, electronic tax filing, and bill payment services. Legal document processing is available in over 100 outlets. The company launched an Internet-based payday loan product in California last month and now intends to expand the offering to additional states.

Dollar Financial pleased investors last week, when it reported fiscal Q4 EPS of 48 cents and revenues of $109.1 million. Analysts had been looking for 47 cents and $107.2 million. In discussing the better-than-expected numbers, the CEO particularly noted the positive effects of the firm's expansion into new areas of the U.S. and also commented on solid revenue increases in Canada and the U.K. Further, management offered in-line guidance for FY08 results. Roth Capital subsequently reiterated its "buy" recommendation on the stock and boosted its price target to $36.

DLLR shares popped into a bullish "flag" consolidation pattern on the news. Prices frequently exit flags moving in the same direction they were traveling when they entered them. In this case, that would be to the upside.

Altogether, brokers recommend the issue with four "strong buys" and three "buys". The DLLR Price to Sales ratio (1.65), Sales Growth rate (25.55%) and EPS Growth rate (26.32%) compare favorably with industry, sector and S&P 500 averages. Institutions own about 95% of the outstanding shares. Over the past 52 weeks, the stock has traded between $20.16 and $33.27. A stop-loss of $22.60 looks good here.

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.