Chasing Value: 2010 -- #3 EZCORP

Posted Dec 29th 2009 6:00PM by Sheldon Liber
Filed under: Competitive Strategy, Starbucks (SBUX), Home Depot (HD), Next Big Thing, McDonald's (MCD), Bargain Stocks, Chasing Value™, Stocks to Buy, EZCORP (EZPW)

One of the easiest stock picks for me to make this year is also one I made last year and for many of the same reasons. In a time of economic turmoil, high unemployment and tight liquidity, what could be more practical than pawn shops and cash advance outlets? EZCORP (EZPW) made me money last year and I expect more of the same as it continues to expand.

Most investors wish they could have gotten in on the ground floor of the hugely successful The Home Depot Corporation (HD), McDonald's Corporation (MCD), or Starbucks Corporation (SBUX) franchises while they only had a few hundred outlets. In the case of EZCORP that is still possible.

While McDonalds can tout over 30,000 outlets, EZPAWN is relatively small with only 330 stores in 11 states and Mexico: most are in Texas. EZCORP also offers customers unsecured loans, commonly referred to as payday loans or payroll advances, through about 75 of its pawnshops, as well as more than 450 EZMONEY payday loan stores in about a dozen states. In 2009 it invested in Australia and Canada, yet all this represents a company with a stock market capitalization of $785 million.

This industry leader could grow ten times larger and that might only be a small step toward its potential. Like McDonalds, EZCORP with it's highly organized, clean, bright stores is cleaning up an industry that has been in need for 100 years. It is expanding organically and by acquisition while maintaining a strong balance sheet with almost no debt.

What I really find amazing is that despite all the actual growth and potential future growth the stock trades at a below average P/E 12.07, Price-to-CashFlow 9.12, Price-to-Sales 1.44 and Price-to-Book 1.60 -- while delivering a Return-on-Equity and Return-on-Invested-Capital near 20%

EZCORP ended the trading day, December 28, 2009 at $17.35.

For the other nine picks see: Chasing Value: 10 Stock Picks for 2010

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.