Pre paid legal dating

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Revenue fell 1.3% in 2009, and sales growth will probably be right around 0% in 2010.

Magic Diligence does not see any compelling growth or moat argument for this company.

The SEC is investigating the company's stock repurchase plan, which as mentioned above is very aggressive.

One concern here is that Pre-Paid issues generous amounts of stock to management, who then sell it through the repurchase program at higher prices.

New memberships have failed to cover the number of memberships cancelled, leading to slight declines in net subscribers.

Legal services are increasingly becoming more available to individuals through online based providers.

Capital requirements are low for this kind of product, which allows the company to put up a nice MFI return on capital (108%) and free cash flow (14% free cash margin) numbers.

Management has been generous with this free cash flow, returning it to shareholders by aggressively repurchasing shares over the past 5 years.

The timing is suspect, to say the least, as the government began to turn up the heat on what is clearly a questionable business strategy.Last but not least, Pre-Paid Legal is not particularly strong financially.Cash is about million, debt about million, with the debt-to-equity ratio high at 110% (I like to see 75% or lower).Nearly all competitors focus on larger employer groups, creating a nice niche for Pre-Paid to operate in.The company's marketing structure is very low cost and scales up and down naturally with the number of subscriptions sold.

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