First Pacific Advisors cites business model concerns regarding Upbound Group
The fund noted Upbound’s sub-prime lending operations remain stable, but questions over its business model and high debt levels have kept the manager from adding the stock to its portfolio.
First Pacific Advisors’ FPA Queens Road Small Cap Value Fund has expressed caution regarding Upbound Group in its first-quarter 2026 investor letter, citing concerns over the company’s high leverage and business model sustainability. The fund highlighted that Upbound has been slow to reduce debt following its 2021 acquisition of Acima and its January 2025 purchase of Brigit, a subscription-based payday lending app.
Despite these structural concerns, the fund acknowledged that Upbound’s sub-prime lending operations have remained resilient. The company reported revenue of $1.2 billion for the first quarter of 2026, representing a 3.7 per cent year-on-year increase. Upbound’s operations are split between Rent-a-Center, which focuses on furniture and appliances through physical stores, and Acima, which offers last-look financing through associated retailers.
The FPA Queens Road Small Cap Value Fund noted that Upbound shares trade at less than five times earnings, presenting a seemingly attractive valuation. However, the manager stated it has been slow to add the stock due to the company’s leverage issues and lingering questions about its business model. The fund is not included in Upbound’s list of the 40 most popular stocks among hedge funds heading into 2026.
Hedge fund interest in Upbound has declined, with 22 portfolios holding the stock at the end of the fourth quarter, down from 27 in the previous quarter. As of May 11, 2026, Upbound’s shares closed at $17.99, with a market capitalisation of $1.05 billion. The stock has lost 29.09 per cent over the past 52 weeks, with a one-month return of -6.98 per cent.
In its letter, First Pacific Advisors noted that while it acknowledges the potential of Upbound Group as an investment, it believes certain artificial intelligence stocks offer greater upside potential with less downside risk. The fund returned 6.07 per cent in the first quarter of 2026, outperforming the Russell 2000 Value Index’s 4.96 per cent return during the same period.
