The S&P/ASX 200 Index (ASX: XJO) fell by 3.06% on Friday, bringing many share prices down with it. During the week there was a cavalcade of bad news. From the start of an official recession after a 7% fall in GDP for the June quarter, to fears of a global slowdown, through to China banning all barley imports from Australia. The last of the major negative economic domestic news was a fall of 0.4% in Core Logic’s home value index.
In the buy now, pay later (BNPL) sector, Paypal Holdings Inc (NASDAQ: PYPL) announced it would be entering the market with an existing global platform. Consequently, companies like Sezzle Inc (ASX: SZL), Zip Co Ltd (ASZ: Z1P) and even the market leader, Afterpay Ltd (ASX: APT), saw their share prices fall by greater than 5%. In addition, the expectation of harder times ahead saw the Commonwealth Bank of Australia (ASX: CBA) share price fall by 2.13%, while the other big 4 banks saw falls of over 3%.
Nevertheless, there were definitely bright spots in the market. In my view, the positive performance of these companies serves to highlight investor sentiment, and where there is the possibility of share price growth over the next 6 – 18 months.
Business credit
Three of the share prices I saw rise on Friday were related to personal and business credit. For example, CML Group Ltd (ASX: CGR) saw its share price go against the tide and rise by 1.37%. CML offers financing services for small businesses secured by assets other than real estate. It also has an online platform called Earlypay to increase customer loyalty and smooth the credit process. I have been watching this company for a while now and I think it is likely to perform well in the current market.
CML Group is selling at a price-to-earnings (P/E) ratio of 22.29 and has a trailing 12 month dividend yield of 4.73%.
Consumer Credit
The Moneyme Ltd (ASX: MME) share price rose by 2.56% Friday. This company is an online loan provider. In FY20 it was able to increase origination by 52.8% and its gross loan book by 52.7%. It has BNPL style services in real estate renting and sales, as well as a short-term, interest-free virtual credit card. However, the neo-lender is a very innovative and versatile company. Its principal business line is personal loans for up to 5 years. Well beyond that of the BNPL sector.
Moneyme is selling at a P/E of 190, which is very high. Clearly the market expects a lot from this company and I think they may be right.
Money3 Corporation Limited (ASX: MNY) is another consumer lender primarily targeting the car loans sector, but also long-term personal loans. Recently, the Money3 share price rose after the company reported an increase in revenue of 35.3% and a 16.4% growth in its loan book. The company has been able to expand significantly in the near prime sector. Near prime is a sector for those with a problematic credit history. Consequently, they are able to charge higher margins.
If even half of the forecasts are correct, we are headed for a pretty rough ride over the next 1 – 2 years. Therefore, companies like this will probably see higher revenues. Money3 is selling at a P/E ratio of 17.29 and has a trailing 12 month dividend yield of 3.86%.
Foolish takeaway
To me, the trends reflected last week signify that investors are repositioning their portfolios for a change in the economy. As such, acting sooner rather than later could be wise. Once shares like these take off, then some potential share price gains could be curtailed. I like all three of these companies, with CML Group being my stand out option.
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Daryl Mather owns shares of Sezzle Inc. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends PayPal Holdings. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Sezzle Inc and recommends the following options: long January 2022 $75 calls on PayPal Holdings. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended PayPal Holdings and Sezzle Inc. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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