Inflation is eating into earnings, and buying power. But this holiday the kids still want that new TV to play their new video games on, so what’s a parent to do? 

If they still want to deliver that cheery smile from their kids, but the dollar needs to stretch a bit this holiday season, then they may be heading to Rent-A-Center. Rent-A-Center can get them that TV at a much lower price, and it can be paid off over time. And, Rent-A-Center just happens to be owned by my focus stock this week, Upbound Group (UPBD). 

UPBD provides rental purchase agreements on furniture, electronics, computers, appliances, and a range of other household and office items that may be just out of range to purchase for many consumers, but can be for over time. 

High inflation is driving a “rent but don’t buy” narrative right now, and rentals are in high demand as a large segment of consumers wait for lower prices to make purchases. Goods are simply unaffordable to purchase outright at this time for these households.

Upbound just beat earnings expectations, and the stock quickly reversed a downtrend that had been in place since early August. It is still far off of its pandemic highs of around $65 set in mid 2021. 

UPBD trades at only 7.6x projected earnings and 0.4x sales. The company has gross margins of over 30% and pays a nearly 5% dividend. 

Upbound Group is in a sweet spot of being able to provide products that are still in demand, but which are increasingly out of reach to the consumers they are meant for. 

The Fed has had to maintain a “higher for longer” mantra specifically because inflation, and high prices, remain sticky. Even though the rate of increasing prices may be declining, that does not mean actual prices have declined from multi-decade highs. 

Upbound should continue to pick up additional business as long as a higher for longer approach to rates is the Fed’s encompassing slogan.   

What To Do Next?

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UPBD shares were unchanged in after-hours trading Tuesday. Year-to-date, UPBD has declined N/A%, versus a 15.52% rise in the benchmark S&P 500 index during the same period.

About the Author: Jay Soloff

Jay is a former professional market maker who cut his teeth trading on the floor of the CBOE. With more than 20 years of experience trading and investing, his focus is on making professional strategies accessible to everyone, which is exactly what does in his highly profitable POWR Income and POWR Stocks Under $10 investment advisory services. More...

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