Chasing Value: Job losses could equal pawn shop gains -- CSH, EZPW

Posted Dec 31st 2008 9:45AM by Sheldon Liber
Filed under: Consumer Experience, Competitive Strategy, Chasing Value™, Best Stocks for 2008, Recession, Best Stocks for 2009

Sometime in the future the economy will recover, maybe not with staggering gains, but it will recover. Ah, but you ask when? Well, trying to forecast that, would really be sticking my neck out.

If you are an avid reader then you have seen some predictions that speak of a recovery in the spring and some that push it out as far as 2011. Tough business that prediction business.

All that is well and good, but let me get to something that I do feel comfortable predicting, or at least repeating the daily news: UNEMPLOYMENT WILL BE GETTING A LOT WORSE in 2009. Who will benefit from this? I expect the church pews and bar stools will be in full use. I also think pawn shops, those lenders of last resort (excepting your local loan shark) will be doing a booming business.

The two most prominent pawn shops that are expanding organically and by acquisition are Cash America (NYSE: CSH) and EZCorp Inc. (NASDAQ: EZPW). Both are down this year but beating the indices by a fair margin.

I like both companies for the obvious reasons, but here are some additional data, as well as some differences between the two. They are both small cap companies with room to run in an industry that has just started to consolidate in the past few years. CSH is at $741 million and its junior competitor EZPW is at $591 million. Both organizations have been bringing professional management, scale, and branding to what has been a mom and pop business for centuries. Both companies have low a P/E and a low P/S for growth companies.

Where they part company is the size of their debt. CSH has some long and short term debt on its books. While it is not highly leveraged, you have to like the debt free EZPW. On the other hand, I like the fact that Cash America pays a small dividend yielding 0.54%, while EZCorp does not.

I acquired EZPW Tuesday morning and will include it in my 2009 picks coming out Wednesday. The reason for favoring one over the other is that EZPW's 11.46% net profit margin is 30% higher and its ROE is 10% higher at 18.75%. The ROA is almost double at 19.27%, and the ROIC is about 80% higher at 21.56%.

Both companies have expanded into Mexico recently and EZPW has bought a small chain or pawn shops in the Las Vegas area. Both are worthy companies that should be growing for years to come, and with unemployment growing as well, I expect both to outperform the market in 2009.

EZPW closed Tuesday at $14.81, up $0.56, or 3.93%
CSH closed up Tuesday $25.73, up $0.76, or 3.04%

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of EZPW.

Tags: CashAmerica, Chasing Value, ChasingValue, CSH, EZ Pawn, EZCorp Inc, EzcorpInc, EzPawn, EZPW, featured, jobs, pawn shops, PawnShops, Sheldon Liber, SheldonLiber

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Reader Comments (Page 1 of 1)

3-28-2009 @ 7:14PM

david wayne osedach said...

I can see Pawn shops getting busy with lots more people pawning. But what will they do with all the stuff? Incredible, used bargains are on Craig's list every day. Everyone else is having garage sales.

1-29-2009 @ 10:01PM

andrew harris said...

now that Vegas population is not growing and a new pawn shop license can only be issued for every 50,000 new people, what is the value for an existing license