Tom Brown’s Second Curve Capital declared having increased its exposure to Consumer Portfolio Services, Inc. (NASDAQ:CPSS), a $170 million market cap company engaged in purchasing and servicing retail automobile contracts originated by franchised automobile dealers and, by independent dealers in the United States in the sale of new and used automobiles. According to a new 13G filing, Second Curve Capital owns around 1.22 million shares of the company’s Common Stock, worth more than $8.6 million. This implies a 51% increase in the fund´s position, in relation to the one it had declared in its last 13F filing. Following this upsurge, Brown’s fund owns 5% of Consumer Portfolio Services´ outstanding shares.
This stock has experienced a marked decline this year. So far, it has fallen almost 25%, and now trades at only 10 times the company’s trailing earnings, compared to an industry average of 17. This has opened an attractive entry point for long-term investors. In fact, despite the cheap valuation and below-average margins, long-term prospects look encouraging: analysts expect Consumer Portfolio Services, Inc. (NASDAQ:CPSS) to deliver an average annual EPS growth rate of around 20% over the next five years, widely outperforming its peers. In addition, a return on equity of 26.9% (compared to an industry average of 17.7x) makes of this stock an even more alluring investment option.
In addition to Second Curve, other major funds are betting on this company. Michael Novogratz’s Fortress Investment Group owns 983,939 shares, and Israel Englander’s Millennium Management, 741,170 shares, both as of the end of 2013
Second Curve Capital’s equity portfolio reaches a valued of more than $480 million and mainly focuses on the financial sector (and capital goods). Since inception, in the year 2000, it has managed to net a 20% average annual return, net of fees, compared to just over 4% for the S&P’s financials index. Its largest bets are placed on Bank of America Corp (NYSE:BAC), of which it holds 8.86 million shares, and on NewStar Financial Inc (NASDAQ:NEWS), of which it owns 4.94 million shares.
Disclosure: Javier Hasse holds no position in any stocks mentioned