For almost three years I have been touting a EZCorp (EZPW) stock that just keeps rising, and I believe is still under valued. Way undervalued. Before I continue let me make it clear I own the stock personally and in my investment company's portfolio -- still eating my own cooking. The initial shares have a cost basis of $11.80. EZPW opened at $29.20 today and is trading higher.
Yesterday EZCorp announced the acquisition of a majority interest in it's Australian partner: EZCORP to Form Global Strategic Alliance With Cash Converters. This expands the global reach of both businesses, increases the range of services, and should also improve efficiency in a broad number of areas.
Let us visit some of the current numbers. At the last company conference call EZPW announced a 42% jump in year over year net earnings. It has a trailing P/E ratio of 13.75 and a forward looking P/E of 11.70. This seems ridiculous to me.
For comparison the S&P 500 P/E ratio based on reported earnings over the past twelve months is about 17.0. Based on forward projections it is about 13.5. These figures are significantly higher than EZPW a proven growth stock with a strong ten year track record.
There are many views one might take about valuation, but with a price-to-earnings-to-growth (PEG) of 0.68 this stock is under appreciated by the market. If you pushed the PEG ratio to 1.0 (still a low figure) with one year earnings per share growth of 17.5% and more in line with the S&P P/E ratio, the reported $1.99 per share earnings would give you a fair value of $34.83 today. If we project only 10% growth then I would think EZCorp should be at least $38.31 (34.83 x 1.1) in a year. If earnings grow in line with historic figures then the stock should be over $40.00.
EZCorp is returning to its shareholders double digit ROE, ROA, and ROIC with no appreciable debt and profit margins over 13%. If anyone can explain to me why this stock is perpetually undervalued or where I have miscalculated I would love to be educated. In the mean time I have been selling puts to acquire more as I continue to chase value.
If you want to see my first rant on the subject return to December 2008: Chasing Value: Job losses could equal pawn shop gains -- CSH, EZPW
Sheldon Liber AIA, is the CEO of Chasing Value™ Asset Management, Inc. He writes the columns Chasing Value™ and Serious Money and is on twitter: @ChasingValue. Disclosure: Mr. Liber currently owns shares of EZPW.