Short the Renter

The weakening economy and concerning outlook for future growth have certainly taken their toll on the consumer. We know the effect this has had on big-ticket items such as automobiles and recreational vehicles: take a look at the charts of General Motors (GM - commentary - Cramer's Take) or Harley Davidson (HOG - commentary - Cramer's Take)

However, even customers of stores like Wal-Mart are finding a need for alternatives if they don't have the cash saved up to make purchases. Washing machines and the like may not seem like huge-ticket items, but if you don't have the cash and you still need it, what do you do? You rent it.

Aaron Rents (RNT - commentary - Cramer's Take) is a rent-to-own chain store. The actual cost of what is paid for goods is much higher than buying them outright. However, if you want an item like a TV or dishwasher and you can make the monthly payment, that's all they are concerned about. This means a less credit-worthy customer base.

The current environment creates a double-edged sword for this company. Further deterioration in the economy may create more customers, but also raises the risk of delinquencies. A strengthening economy means less need for Aaron's services and could also hurt growth. It isn't immune to the economic slowdown either and it has reduced its growth plans in response.

Another potential negative is the higher cost being charged to these less credit-worthy individuals can be considered taking advantage of the so-called working class. With the current administration and Democratic congress looking do everything in their power to help out the little guy, there might be some necessary adjustments to Aaron's business practices as well.

The stock has been showing strong relative price performance during the market decline but also deterioration and a loss of upside momentum. For the last two years, the stock has been trading sideways to lower and currently is set up with risk of further deterioration.

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At the time of publication, John Hughes and Scott Maragioglio had no positions in the stocks mentioned. Hughes and Maragioglio co-founded Epiphany Equity Research, which has developed and utilizes proprietary tools to identify and track liquidity changes in the market indices and sectors. Hughes advises numerous asset managers, hedge funds and institutions managing in excess of $30 billion. Maragioglio is a member of the market technicians association (MTA) as well as The American Association of Professional Technical Analysts (AAPTA) and holds a Chartered Market Technician (CMT) designation. Maragioglio has also served on the board of directors of the AAPTA.