Q: What happens to the earnings of Propel if the US economy goes into recession? I’m confused because I have heard recessions cause more people to use their type of lending. Yet you would think defaults would rise significantly. What would the net effect be?
5i Research Answer:
Typically business will increase as consumers get more desperate and banks become more risk-adverse. The company can still grow and make moeny as long as it does not adjust its credit policies. Credit losses may increase but if the company prices loans properly (higher interest) then it may not be impacted so much. That being said it is in a highly sensitive area for investors, and a recession might certainly change its valuation metrics, even if it is still doing well. PRL was not public in the last real recession. GSY was. It continued to be profitable and pay and grow its dividend, but its stock did decline sharply in the period.