Would You Buy A Used Car Stock?

Would you buy the shares of a used-car dealer? Most people wouldn't. Yet some big investors have bought into Solar Financial Services, an operator of used-car dealerships in Miami. One investor is Orlando-based National Heritage Life Insurance, which plunked down $5 million in July for a 5% stake in Solar.

What's the deal? "Solar isn't one of your average used-car dealers," says Norbert Hochschartner, managing partner at Equity Communications Group, a research firm in Bedford, N.H. Solar considers itself more of a financing company that also offers insurance and repair services. Its growth has been rapid: Sales are expected to jump to $28 million in the year ending May 31, 1994, vs. an estimated $19 million in fiscal 1993, says Hochschartner. He expects earnings of 53 next year, up from an estimated 36 in fiscal 1993.

Hochschartner points out that Solar President Dave Pavsner uses conservative accounting by reflecting profits from a sale over the number of months of the sales contract.

Pavsner says two new operations should add to earnings: A new-car leasing business to be launched in September and a salvage yard that will retrieve and recondition parts from wrecked vehicles. Hochschartner figures that Solar's stock, now at 4 a share, is undervalued compared with shares of other financing companies. He thinks the company is worth 10 a share.