World Acceptance Corporation (WRLD), the consumer finance company known for providing loans to individuals with limited credit access, recently held its Q4 2024 earnings call. While the initial market reaction seemed muted, a deeper dive into the transcript reveals a hidden signal, one that suggests World Acceptance might be poised for a significant re-rating. This signal, cleverly disguised within management's commentary, has seemingly flown under the radar of most analysts.

What is this hidden signal? It's a combination of two factors: the company's rapidly improving credit quality and its ambitious, yet veiled, growth strategy. While these elements are mentioned separately in the transcript, it's the interplay between them that creates a potent force for potential shareholder value creation.

Improving Credit Quality

Let's start with credit quality. World Acceptance has undergone a deliberate and successful effort to de-risk its loan portfolio over the past two years. The call highlighted significant reductions in delinquency, with the 60-day or longer delinquency rate improving by 9% year-over-year and the 90+ delinquency rate dropping by an impressive 11%. Even more striking is the improvement in the annualized net charge-off rate, which plunged by over 500 basis points year-over-year, a 20% reduction on a relative basis.

These numbers aren't merely a reflection of portfolio liquidation, as some analysts might suggest. Management explicitly confirmed that changes to lifetime loss assumptions, driven by the improving delinquency trends, played a role in the substantial provision release this quarter. This speaks to a genuine and sustainable improvement in the underlying credit quality of World Acceptance's customer base.

A Veiled Growth Strategy

Now, let's turn to the growth strategy. Management strategically avoided providing concrete guidance for fiscal 2025. However, they did use the phrase 'modest growth' multiple times, even when discussing the ambitious vesting tiers of their long-term incentive plan, set at $16.35 and $20.45 earnings per share.

""...management continues to accrue for the long-term incentive plan with vesting tiers of $16.35 and $20.45 earnings per share due to the overall much-improved credit quality and operating conditions...We anticipate returning to modest growth this year with a continued focus on reducing delinquency and net charge-offs..." - Chad Prashad, CEO"

Here's where things get interesting. The current market price of World Acceptance hovers around $120. A $20.45 EPS target, if achieved, would imply a price-to-earnings ratio of just under 6. This is exceptionally low for a company with a track record of profitability and a now demonstrably improving credit profile.

Reference: Based on market data as of [Date of Analysis].

It's hard to imagine management casually throwing out such an aggressive EPS target, especially while repeatedly emphasizing 'modest growth,' without having a well-defined plan to bridge the gap. This suggests that their vision of 'modest growth' might be far more substantial than the market is currently anticipating.

Clues from Q3 2024

The pieces of the puzzle start to fall into place when we consider the transcript from World Acceptance's Q3 2024 earnings call. Management highlighted a significant sequential increase in new customer loan volume, a trend that continued into Q4. They also noted a 30% increase in new loan application volume year-over-year, indicating strong underlying demand for their products.

""...new customer loan volume increased about 22% sequentially this quarter from the prior quarter and about 56% compared to last year's third quarter...New loan application volume increased around 30% this quarter when compared to last third quarter..." - Chad Prashad, CEO"

Furthermore, the company has been actively refining its underwriting and marketing strategies, achieving higher approval and booking rates without sacrificing credit quality. This positions them perfectly to capitalize on the improving economic outlook and the decreasing likelihood of a major unemployment event impacting their customer base.

The Hypothesis: Accelerated Growth

Putting it all together, here's the hypothesis: World Acceptance is laying the groundwork for a period of accelerated growth, fueled by a combination of increased demand, improved underwriting efficiency, and a more favorable macroeconomic environment. Their 'modest growth' narrative serves as a smokescreen, masking a potentially aggressive expansion strategy that could drive EPS towards their ambitious vesting targets.

If this hypothesis holds true, World Acceptance Corp. is significantly undervalued at its current price. The market is failing to recognize the combined impact of improving credit quality and a potentially powerful growth engine. A successful execution of this strategy could see the stock easily breach the $200 mark, representing a significant upside for investors who are willing to look beyond the surface.

"Fun Fact: Did you know that World Acceptance Corp. is one of the few publicly traded companies in the consumer finance sector with a female Senior Vice President of Marketing? Victoria G. Hammond, who joined the company in 2023, brings a wealth of experience to the role, having previously held senior marketing positions at several Fortune 500 companies. This focus on diversity and inclusion could further enhance World Acceptance's ability to connect with its target customer base."

Reference: Based on company information and leadership profiles.