3 stocks that will benefit from rising consumer credit

Increasing credit card applications and personal loans show demand for consumer debt is growing.

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As the economy has found its legs and starts to stand, consumers are buying more. This is great news for investors looking forward to higher company earnings. One result of this is rising consumer credit, which gives buyers the ability to pay for things more easily.

This can also be a two-edged sword that cuts through plastic money and easy financing. Frugal habits sometimes give way to impulse buying and soon budgets are blown out.

Here are three companies that can benefit from growing consumer credit and help customers manage debt.

Veda Group Ltd (ASX: VED) performs data analytics services, providing credit information to businesses and individuals for making finance decisions and managing risks. People applying for loans can get personal credit history reports and companies can do this on customers as well.

The company has noticed an increase in applications for credit cards and personal loans. Demand for unsecured loans and vendor financing is expected to grow, so this company could see more business for credit reporting and analysis.

Since listing in December 2013, the company’s share price has gone from about $1.75 to $2.33 currently. It has a PE of 39, so the market is expecting this company to grow earnings. In March, it was added to the S&P ASX 200 Index (ASX: ^XJO).

FlexiGroup Limited (ASX: FXL) provides vendor finance services, as well as personal loans and credit card issuance. Purchasers can use the service when they buy or rent household goods from retail stores like Harvey Norman Holdings Limited (ASX: HVN).

It has increased revenue since 2007 and net profit has been rising steadily. It hit a peak of about $5 in October last year, yet has trended down to $3.70 currently. It has a 13 PE and a dividend yield of 4.1%

Collection House Limited (ASX: CLH) is a receivables management provider, which includes purchased debt from companies and commission collection. It also helps individuals improve their credit and manage expenses to relieve financially difficult circumstances.

In the past four years, the company has more than doubled its underlying net profit. In the first half of FY2014, it raised its net profit 16.2% while reducing gearing and increasing return on equity to 13.2%.

Since July 2012, its share price has climbed from about $0.80c to $1.77 currently. It has a 12.4 PE and a dividend yield of 4.2%.

Foolish takeaway

Credit is a great tool for consumers and businesses alike. It can also be a good way to achieve attractive returns for investors.

Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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