Do Not — We Repeat — Do Not Rent Your Home Furnishings

One unfortunate side-effect of the downturn is the resurgence of rent-to-own businesses. These stores, which include large chains like Rent-a-Center and Aarons, lease everything from furniture to TVs to consumers who have trouble getting traditional loans or credit cards, and don’t have enough cash to pay for the item upfront. While paying, say, $100 a month for a big LCD TV might seem like a good deal to some cash-strapped consumers, you inevitably end up paying interest rates that can run over 100%, and if you miss a payment or two, you can say goodbye to the TV — and any cash you’ve already paid out.

But nevermind all that. Are rent-to-own businesses good for investors? Fortune has the rundown on Aarons, a publicly traded, family-run business with 1,575 stores, which saw sales jump 15% in the first quarter of this year:

Here’s how Aaron’s model works: Aaron’s leases, say, a $1,000 TV to a customer for $99 a month. After 24 months the customer owns the TV for a total of $2,600, including taxes and service charges. If the customer is unable to make monthly payments for any reason, he can cancel the lease with no penalty. …

Aaron’s business model may be striking the right notes in this cash strapped economy, but after a steep climb (the shares are up 17% since January), some analysts say the stock price needs some breathing room. …

But David Magee of SunTrust Robinson Humphrey, one of the few analysts to still rate the stock a buy, says there is more upside. He points to Aaron’s 12% rise in sales at stores open at a least a year during the first quarter. “You’d be hard pressed to find another retailer putting up those kinds of gains,” he says.

So there you have it. If you put some cash into Aarons earlier this year, you’re doing pretty well. On the other hand, if you’ve put your cash into a TV from Aarons, you have our sympathy.

Rent-to-own makes a comeback [Fortune]
With Rent to Own, Your Paycheck’s Blown [Consumers League of New Jersey]