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Rent-to-Own Stocks Look Compelling

Private equity investments make this sector look attractive

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The rent-to-own sector has always been a favorite of mine, at least as far as the business model is concerned.

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Source: Flickr

Customers who cannot afford to purchase new appliances go to a rent-to-own store, and rent the appliance instead. If they later choose to buy the product, they have that option. Along the way, the rental fees collected (even if the product is returned and re-rented) vastly exceed the purchase price the merchant paid for it. In fact, the merchant probably got a bulk discount for purchasing it. In many ways, it’s like timeshares for appliances — and timeshares make a lot of money.

Alas, the rent-to-own industry is mature, with thousands of stores spread across the country. Competition grew here pretty quickly, because capital recognized that lending money to these outfits was a pretty secure investment. In the worst-case scenario, appliances were re-possessed for failure to pay, so there was some collateral even though it was a depreciating asset.

Now that the industry is mostly in the hands of large chains, private equity is moving in for buyouts, eager to take over chains that may have inefficiencies but that, regardless, generate the cash flow that private equity loves. Here are three of the best-looking rent-to-own stocks:

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