Description

Scott102 made an excellent call on this stock nearly a year ago and the stock doubled despite poor ratings.

With the stock backing off from it recent and 52 week highs I think it's time to get back in.

If you don't recall, CRMT is one of the largest operators of "buy here, pay here" used car lots in the US. Based in Bentonville, Arkansas, CRMT opearates 62 lots, selling affordable transport to credit impaired customers in small towns across several southern states.

Car Mart was formed in 1981 and has operated profitably ever since. When a founder became ill in 1998, the family decided to sell to Crown Group (the predecessor to CRMT). Crown's management was so impressed by what they had purchased that they decided to sell off their ancillary businesses and the change the company's focus and name to America's Car Mart.

As Pelican observed previously, this is a business where trust is important and often lacking. I find it interesting that the company's corporate policy is to only hire people from OUTSIDE the used car business. A high % of repeat business indicates that customers don't feel like they are being taken advantage of. And, with 21 straight years of profitablility I would think that serious problems would have surfaced by now. Plus, the company's bank recently expanded their line. It is hard to tell for sure, but having met Hank Henderson (President of Car Mart), I felt he was a fresh faced, clean cut, straight shooter. No gold chain, or pinkie rings, thank you.

This is an execution business. CRMT's been executing for 21 years despite all the subprime problems you read about in the paper, if not experience in your portfolio. They operate in small towns and know their customer. Lot managers' compensation is dependent on collections, not just sales. A relentless focus on collections is the key to the business and I think they have shown that and continue to maintain and sharpen that focus.

Competing mostly against mom and pops and small regionals, CRMT should be able to leverage their brand name, professionalism and experience to take share and grow. The company believes, over the long term, they can grow EPS at 16-18% per annum, somewhat below historical rates.

CRMT's FY 2003 ends in April. They should earn $1.70 per share or so. At 12.75, that's 7.5x earnings. The cloud over the subprime industry has just smothered the multiple here. The PEG is a mere .44x . I could see GARP funds getting comfortable with a mid-teens multiple as CRMT continues to put numbers on the board. That would put the stock in the mid-20's. Alternatively, you could view CRMT as a hybrid specialty retailer/sub prime lender. Putting a 15 PE on the retailer and 5-6 on the sub prime gives you a 10 multiple that still puts you at 17, a 33% move from here.

Catalyst

Continued execution and increased visibility should drive multiple expansion. Company will be going on the road again in the new year and will be presenting at the Stephens automotive conference in March. With a little push, CRMT's market cap might just be high enough for inclusion in the Russell 2000 Index next summer.