Sometimes, personal observation rather than hard data provides the best investment clues. For instance, I recall standing in a long line at JB Hi-Fi many years ago, admiring the retailer. And also deciding Domino’s was unquestionably good value at $5 a pizza.
And that REA Group’s was more than just an internet site for property advertising; its content was a form of property entertainment for some. And that Woolworths three years ago looked tired compared to Coles. 
But the danger in this is extrapolating a good or bad experience, which may have been an outlier, across a company’s products or services. Or putting too much weight on issues that have minor influence on earnings. 
Still, our eyes, ears and common sense are powerful investment tools – a point made by legendary United States investor Peter Lynch. Lynch claimed many of his best ideas came from walking through grocery stores or listening to friends and family.
I thought about Lynch’s advice while listening to talkback radio this week. A caller complained about rising utility bills and higher living costs. Another called to reinforce the view that more Australians were nearing financial breakdown.
The callers added weight to stories earlier this year about a sharp lift in people calling financial-counselling services. Some commentators saw this as an early sign of expanding financial hardship that would pop Australia’s property bubble. 
Economic data this week showed the country’s economy continued to limp along and that wages remained at record lows. High debt, flat wages and rising living costs are a dangerous cocktail – expect a bigger spike in financial hardship in the next 12-18 months. 
Which brings me to the so-called “hardship” stocks: those that buy distressed debt from utilities and other large companies, offer pawnbroking and short-term finance facilities, rent goods to those who cannot afford to buy, or provide financial-counselling services and help consolidate personal debt.  Think Credit Corp, Collection House, Pioneer Credit, Cash Converters International, Thorn Group (via Radio Rentals) and FSA Group (via the Fox Symes Debt Solutions business). 
I identified FSA for The Bull in January 2014 and suggested buying around $1, which it hit later that year. The stock now trades at $1.34 and looks of reasonable value.
The distressed-debt segment – Credit Corp, Collection House and Pioneer Credit, in particular – looks interesting. A good bet is more people struggling to pay their electricity and phone bills and utilities selling this debt for a fraction of its book value.  
Extra supply of distressed debt, on its own, is not sufficient to make the case to buy these stocks. Excessive demand pushes up the price of this debt – historically high pricing has been a trend in recent years as smaller buyers have entered the distressed debt market. 
Also, stable unemployment levels are critical; these debt collectors need people who can pay back outstanding bills.
Conditions look reasonable for these companies. The economy, although soft, continues to notch quarterly growth. A 5.7 per cent unemployment rate in April continued an 18-month stretch of stable jobs news. And the property market keeps defying predictions of a crash.
Pioneer Credit is an interesting newcomer on the distressed-debt ledger scene. I first wrote about Pioneer for The Bull in July 2014, describing the company as “one of three hidden-gem Initial Public Offerings” for investors. 
With little fanfare, the financial-services group listed in May 2014, raising $40 million at $1.60 a share. Pioneer now trades at $2.28 after strong price gains in the past 12 months.  Pioneer specialises in acquiring and servicing unsecured retail-debt portfolios. It buys debt that is more than 180 days overdue and seeks to recoup part of that debt over time.
Perth-based, the $136-million micro-cap company does not have the market profile of its larger East Coast peers, Credit Corp and Collection House. 
That could change. Pioneer has delivered consistently strong revenue and profit growth since FY14. Earnings before interest and tax (EBIT) of $16 million in FY16 is up from $2.3 million in FY14. Return on equity is almost 15 per cent and rising. 
The interim dividend is up from 1.75 cents a share in FY15 to 4.22 cents in FY17. Consistent, rising dividends are invariably a good sign in emerging micro-cap industrials. 
Pioneer is well managed and governed, and has a good reputation. These are important considerations when large companies decide where to sell debt, given the distressed-debt firms deal with defaulting customers. 
At $2.28, Pioneer Credit trades on a forecast Price Earnings (PE) multiple of about eight times on some broker forecasts. That is undemanding for a small-cap with a good record, visible earnings growth and several expansion opportunities. 
Insightful share-valuation service Skaffold believes Pioneer is trading 37 per cent below fair value. Skaffold predicts the value will rise from $3.66 a share in 2017 to $4.51 in 2019. 
That might be too optimistic. Pioneer is due for consolidation or a price pullback after strong gains over 12 months. But any sustained price weakness could be a long-term buying opportunity for investors who understand the higher risks of smaller stocks. 
Pioneer looks like one on the market’s better emerging micro-caps.
Chart 1: Pioneer Source: The Bull 

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Tony Featherstone is a former managing editor of BRW and Shares magazines. The information in this article should not be considered personal advice. The article has been prepared without considering your objectives, financial situation or needs. Before acting on the information in this article you should consider its appropriateness, regarding your objectives, financial situation and needs. Do further research of your own or seek personal financial advice from a licensed adviser before making any financial or investment decisions based on this article. All prices and analysis at June 7, 2017