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First Cash Financial Services, Administaff, and Jackson Hewitt thoughts



January 02, 2008 – Comments (1)


What bothers me about FCFS is that TMF calls the used-car business an outstanding growth opportunity when this is a new part of their business.  How do we know if the executive team can run a used-car business?  I'd put the used-car business on the speculative side of the ledger and value it at only half its year growth mark.  Plus the business is starting with 8 shops.  How will the model hold up under a lot of growth?  One thing of note is that they finance a lot of under banked people which they think fit in their areas of operation.  Business bought in August 2006.  They will compete with AutoNation and CarMax which are much better financed.  I'm not really comfortable with the whole pawn shop business.  First of all there is ebay which I think reduces the need for the consumer part of the business.  The couple times I've been in them I never saw any good deals.  That is if I saw anything I really wanted.  Second, the stores themselves aren't really inviting places to shop.  If the pawn shops were strictly second hand jewelry stores well then I would be more attracted to them.  Gold and diamonds have a real value and can be easily unloaded but how easy is it to unload a three year old stereo system?


Lost 3 mid-sized clients.  Growth down to 8% due to loss.  Estimates expenses (healthcare, workers comp) and keeps what's left over.  Serves companies from staff of 10-200 and focuses on companies under 150 employees.  Hires company's employees and pays them.  Retention rates of 80%.  Targets white collar companies.  Gross profit and operating income per worksite employee double the industry average.  Cofounder now CEO and chairman and owns 8%.  CFO employeed since 1989 and now President and owns 4%.  A lot of tenure in executive suite.  Has 5,700 clients today.  205MM cash & sec., no debt, minimal operating leases.  This is a business concept that I like for the long term.  If you're just starting a business you don't know much about workmans comp, health insurance, paying employee taxes and all the rules that go into having employees.  I can see small companies hiring ASF at the outset and then keeping them on as they grow.  Once the company grows to a certain size they'll probably bring those functions in-house but how many companies grow to such a scale.


Every year people have to pay taxes, so until everyone does their own taxes or the country goes to a sales tax system, this company's product will be relevant.  Their main competitor is H&R Block, but they've been hurt by the sub-prime mortgage mess.   This may be JH's best time to take market share while H&R licks its wounds.  I have to admit that this business doesn't speak to me.  Although it's a boring Lynch like business, I think more and more people will be filing on-line and or computer based.  The good think about JH is that they cater to the less affluent tax filer that may not have computers and are often less savvy about financial matters, so they may not be confident enough to do their own taxes.  The downside to helping less affluent filers is that their filings are less complex which earns less money per filing and with less complex filings the easier it is for those individuals to file themselves.

1 Comments – Post Your Own

#1) On January 02, 2008 at 1:45 PM, HistoricalPEGuy (65.63) wrote:

ASF is good, MAN is better.  The whole sector is getting slaughtered and it makes no sense to me.

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