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People always had junk. Before there was Ebay, the only way they could turn their junk into cash, there was pawn shops. Whenever folks were low on cash, they could always go down to the pawn shop to get a loan (or just get rid of junk).
Not that kind of pawn!
Now we have Ebay and we still have pawn shops. So I guess pawn shops aren’t going anyplace.
Today I bought stock in EZPW (EZCORP, Inc) at 19.36. I will sell it in 4 – 6 weeks at 22.31. Here’s why I like EZPW.
EZCORP, Inc., together with its subsidiaries, lends or provides credit services to individuals to meet their short-term cash needs. It offers pawn loans, which are non recourse loans collateralized by tangible personal property, including jewelry, consumer electronics, tools, sporting goods, and musical instruments. The company also provides signature loans consisting of payday loans, installment loans, auto title loans, or fee-based credit services to customers seeking loans. In addition, EZCORP provides credit services, including advice and assistance to customers in obtaining loans from unaffiliated lenders. As of September 30, 2009, it operated a total of 910 locations consisting of 369 the U.S. pawnshops, 62 pawnshops in Mexico, 477 the U.S. short-term loan stores, and 2 short-term loan stores in Canada. The company was founded in 1989 and is headquartered in Austin, Texas.
Here’s how a pawn shop works. Someone needs money so they bring something to the pawn shop. The pawn shop gives the person a loan (an amount less than what the item is worth) and uses the item as collateral. If the shop sells the collateral before the customer repays the loan, the shop pockets the profit. If the customer returns before the item is sold and repays the loan, often after his next paycheck, he gets his pawned item returned.
At the end of the day, conventional banks just don’t want customers who are always cash constrained. Companies like EZCorp have their place, though, because their customers are higher risk, and need only small amounts of cash - usually immediately - which rules out big bank and traditional personal loan providers. So EZCORP fills a niche of society and provides this service. These folks can’t get credit at all. But everyone needs credit. EZCORP fills the void. Earlier this year, EZCorp posted its 30th straight quarter of rising earnings, which means people use these services when times are bad – and – when times are good.
These aren’t glamorous businesses, and payday loans are downright controversial. Many states have passed substantive legislation limiting the scope of these loans in an effort to protect consumers from the high interest rates. Sometimes they are as high as 20% or more on loans of just $1,000. Despite the political pressure, payday loans are still a big business in the U.S., and Texas-based EZCORP is one of the dominant players in this space.
Worried about the regs? The company also has significant international exposure. Partnerships in the U.K.and Australia gives the company a foothold in Australia, Spain, South Africa, and France for some geographical and political risk diversification. The business model works. People are people. If Obama squishes EZCORP in the USA, they will just invest elsewhere with the same business model.
Most of the 13,000 pawn shops in America are independent entities. EZCORP’s chain of stores gives them economy of scale operating efficiencies that the little guys don’t have. So they are the very best in an industry that seems to be traditionally robust – a nice combination.
In addition to the payday loans, EZCORP offers other products. Traditional installment loans and auto title loans are also available most of its branches (remember my recent $$$MR. MARKET$$$ winner – CACC???)
$$$MR. MARKET$$$ doen’t see anything getting in the way of further growth for the next several years. There are a few things about this company’s financial structure that I’d like to point out:
Q on Q earnings (yoy) growth is 39%. The trailing PE of 10.7 puts it at a tremendous discount to its peers (industry average 26 ). Compared to the industry, EZCORP has more liquidity, less leverage, and operates more profitably. The five year PEG ratio is a bargain at 0.70. Net margins are at around 13%. The company carries a miniscule amount of debt. Think of all these facts and remember EZPW’s tremendous track record of profitability. The ROE, and ROIC are almost 20% which generates cash flow to continue to roll up more stores…and grow.
Look at this chart:
All it wants to do is go up!
With gold prices sky high, EZPW's pawnshops are busier than ever, melting down their inventory – if you can pardon that pun. A big chunk of the business of pawn lenders comes in making loans on gold jewelry. With the price of gold elevated, the companies can safely lend more money against a given item, making transactions more profitable. Moreover, as gold prices rise, so does the value of the jewelry that isn't redeemed by borrowers; this gets melted down and sold.
Revenues have increased from $227.8 million for the year ending September 30, 2004 to $597.5 million in the year ending September 30, 2009. During this period, gross profit margins remained fairly steady ranging from 61.3 percent to 69.5 percent. The result is a near tripling of gross profit dollars for the year ending September 30, 2009 as compared to September 30, 2004. EZCORP’s top line growth helped feed the bottom line. Great companies make money by growing revenues..not just cutting costs.
However, speaking of cutting costs. Operating expenses as a percentage of sales have declined over the years. For the year ending September 30, 2004, operating expenses as a percentage of sales was 93.7 percent. Operating expenses as a percent of sales declined to 83 percent in the year ending September 30, 2009.
The numbers speak for themselves. This company is a wrecking machine, it runs with the ball like Trevor. It can’t be stopped.
Year ........ Sales ........ C/F .......... EPS ....... B/V ....... Avg. P/E ... 52-wk Range
2004 ........6.14 .........0.45 .........0.23 ........3.15..........12.6x ........2.20-5.20
2005 ........6.59 .........0.59 .........0.36.........3.46 .........12.3x ........3.10-7.40
2006 ........7.80 .........0.94 .........0.69 ........4.20 .........13.2x ........4.90-17.10
2007 ........9.01 .........1.15 .........0.88 ........5.23 .........16.3x .......10.10-17.60
2008 ...... 11.02 ........1.56 .........1.21 ........6.58 .........11.1x ........10.00-19.30
The last time EZPW’s PE was this low, shares went up 500%. If you look at FCFS’s PE of 15 (remember FCFS was another $$$MR. MARKET$$$ winner), you can see that EZPW is way undervalued.
So..how are the earnings these days?
EZCORP's net income for the quarter increased 39% to $20.0 million ($0.40 per share) compared to $14.4 million ($0.29 per share) for the third quarter of fiscal 2009. Total revenues for the quarter increased 17% over the prior year period to $173.5 million.
Consolidated operating income improved 34% to $28.8 million (27% of net revenues) from $21.5 million (24% of net revenues) in the prior year quarter. Store level operating income improved $9.2 million in the Company's U.S. Pawn operations, $0.3 million in its Empeno Facil Mexico Pawn segment and $3.1 million in its EZMONEY operations.
EZCORP's net income for the nine-month period ended June 30, 2010 increased 46% to $69.4 million ($1.40 per share) compared to $47.5 million ($1.00 per share) for the prior year nine-month period. Operating income for the nine months improved 43% to $101.8 million (31% of net revenues) compared to $71.2 million (27% of net revenues) for the prior year nine-month period.
For the full year 2010 the company expects earnings per share of $1.81 and based on the current price of the stock that would put the P/E ratio under 10. Remember what I said about the last time its PE was this low??
So if you are looking for $$$MR. MARKET$$$ to make an earnings prediction, don’t worry about it. The value on this stock and its historical performance means that its stock price ain’t gonna go down from here. If it doesn’t go down, it means it has to go up.
Here’s what the bosses have to say:
Commenting on these results, Chief Executive Officer, Joe Rotunda, stated, "The June quarter was another great quarter for EZCORP. Each of our business segments and strategic affiliates produced robust revenue and earnings increases over the prior year quarter. In addition, our consolidated pawn and EZMONEY loan portfolios reflect strong, high quality growth over last year of 19% and 28%, respectively. These results clearly demonstrate strong consumer demand for our assortment of products and services and the value and convenience they provide in today's financial marketplace."
“It’s probably an influx of additional customers that we’re seeing now, that possibly see the value in the product offerings that we have, if you look the auto title business and see that volume that was generated there, the vast majority of that business, our new customers who haven’t been in our store before and that’s not just in the EZMONEY business it’s also in our pawnshops we have just a little over 60 pawnshops that also offer the auto title loan. In both segments those customer are new to our stores. It’s more difficult to tell that in the pawn and payday loan segments as it relates to those base products. But I think we have seen with the increase in transactions at least a good number of new customers coming into our stores. Due to our portfolio growth, I think will certainly indicate that our portfolios growth.
So the strong double-digit pawn growth that you had is certainly sustainable would indicate that it’s sustainable, because the customer continues to redeem the merchandise at a higher level you made it before. The purchases that were making what would have been in many cases forfeitures before, so were able then to take care of that customer immediately and the scale itself has grown so significantly. I think that much of that has to be from new customers coming in. So is it sustainable right as we look at the growth of our portfolios and the fact that they continue to grow and we think certainly it is. With the payday loan, auto title loan and installment loans as well, you look at the growth that we’ve had over last year and it’s almost 20% growth in portfolio and the redemption rate of the customer is at higher level then it has been in the past as well. So it just seems that the customers coming in and satisfying our obligations, satisfying your need for cash I would think become part of our consumer base as we go forward.”
The Company's President and Chief Operating Officer, Paul Rothamel, added, "We are very pleased by the strong growth and customer acceptance of our expanded offerings, and recently achieved a number of significant milestones. We acquired thirteen domestic pawn stores in June, giving us an entrance to the Chicago area and strengthening our number one position in Florida; we surpassed 70 new store openings year-to-date; and we opened our 100th pawn store in Mexico on July 2."
Rothamel concluded, "We continue to drive earnings growth with an intense focus on product and geographic diversification, new store growth and superior customer service. We are increasing our expected earnings per share for the full fiscal year ending September 30 to $1.92, representing a 35% increase from $1.42 in fiscal 2009."
Remember, this company is GROWING. Heck, I’ll take his $1.92 and multiply it by a PE of 12 (look at the historical average PE’s) to get me a share price of $23.04. That’s greater than my target and means another $$$MR. MARKET$$$ winner is born.
I am HUGE! Bring me your finest meats and cheeses. Let me know if you liked this stock and this write up.
$$$MR. MARKET$$$
Not that kind of pawn!
Now we have Ebay and we still have pawn shops. So I guess pawn shops aren’t going anyplace.
Today I bought stock in EZPW (EZCORP, Inc) at 19.36. I will sell it in 4 – 6 weeks at 22.31. Here’s why I like EZPW.
EZCORP, Inc., together with its subsidiaries, lends or provides credit services to individuals to meet their short-term cash needs. It offers pawn loans, which are non recourse loans collateralized by tangible personal property, including jewelry, consumer electronics, tools, sporting goods, and musical instruments. The company also provides signature loans consisting of payday loans, installment loans, auto title loans, or fee-based credit services to customers seeking loans. In addition, EZCORP provides credit services, including advice and assistance to customers in obtaining loans from unaffiliated lenders. As of September 30, 2009, it operated a total of 910 locations consisting of 369 the U.S. pawnshops, 62 pawnshops in Mexico, 477 the U.S. short-term loan stores, and 2 short-term loan stores in Canada. The company was founded in 1989 and is headquartered in Austin, Texas.
Here’s how a pawn shop works. Someone needs money so they bring something to the pawn shop. The pawn shop gives the person a loan (an amount less than what the item is worth) and uses the item as collateral. If the shop sells the collateral before the customer repays the loan, the shop pockets the profit. If the customer returns before the item is sold and repays the loan, often after his next paycheck, he gets his pawned item returned.
At the end of the day, conventional banks just don’t want customers who are always cash constrained. Companies like EZCorp have their place, though, because their customers are higher risk, and need only small amounts of cash - usually immediately - which rules out big bank and traditional personal loan providers. So EZCORP fills a niche of society and provides this service. These folks can’t get credit at all. But everyone needs credit. EZCORP fills the void. Earlier this year, EZCorp posted its 30th straight quarter of rising earnings, which means people use these services when times are bad – and – when times are good.
These aren’t glamorous businesses, and payday loans are downright controversial. Many states have passed substantive legislation limiting the scope of these loans in an effort to protect consumers from the high interest rates. Sometimes they are as high as 20% or more on loans of just $1,000. Despite the political pressure, payday loans are still a big business in the U.S., and Texas-based EZCORP is one of the dominant players in this space.
Worried about the regs? The company also has significant international exposure. Partnerships in the U.K.and Australia gives the company a foothold in Australia, Spain, South Africa, and France for some geographical and political risk diversification. The business model works. People are people. If Obama squishes EZCORP in the USA, they will just invest elsewhere with the same business model.
Most of the 13,000 pawn shops in America are independent entities. EZCORP’s chain of stores gives them economy of scale operating efficiencies that the little guys don’t have. So they are the very best in an industry that seems to be traditionally robust – a nice combination.
In addition to the payday loans, EZCORP offers other products. Traditional installment loans and auto title loans are also available most of its branches (remember my recent $$$MR. MARKET$$$ winner – CACC???)
$$$MR. MARKET$$$ doen’t see anything getting in the way of further growth for the next several years. There are a few things about this company’s financial structure that I’d like to point out:
Q on Q earnings (yoy) growth is 39%. The trailing PE of 10.7 puts it at a tremendous discount to its peers (industry average 26 ). Compared to the industry, EZCORP has more liquidity, less leverage, and operates more profitably. The five year PEG ratio is a bargain at 0.70. Net margins are at around 13%. The company carries a miniscule amount of debt. Think of all these facts and remember EZPW’s tremendous track record of profitability. The ROE, and ROIC are almost 20% which generates cash flow to continue to roll up more stores…and grow.
Look at this chart:
All it wants to do is go up!
With gold prices sky high, EZPW's pawnshops are busier than ever, melting down their inventory – if you can pardon that pun. A big chunk of the business of pawn lenders comes in making loans on gold jewelry. With the price of gold elevated, the companies can safely lend more money against a given item, making transactions more profitable. Moreover, as gold prices rise, so does the value of the jewelry that isn't redeemed by borrowers; this gets melted down and sold.
Revenues have increased from $227.8 million for the year ending September 30, 2004 to $597.5 million in the year ending September 30, 2009. During this period, gross profit margins remained fairly steady ranging from 61.3 percent to 69.5 percent. The result is a near tripling of gross profit dollars for the year ending September 30, 2009 as compared to September 30, 2004. EZCORP’s top line growth helped feed the bottom line. Great companies make money by growing revenues..not just cutting costs.
However, speaking of cutting costs. Operating expenses as a percentage of sales have declined over the years. For the year ending September 30, 2004, operating expenses as a percentage of sales was 93.7 percent. Operating expenses as a percent of sales declined to 83 percent in the year ending September 30, 2009.
The numbers speak for themselves. This company is a wrecking machine, it runs with the ball like Trevor. It can’t be stopped.
Year ........ Sales ........ C/F .......... EPS ....... B/V ....... Avg. P/E ... 52-wk Range
2004 ........6.14 .........0.45 .........0.23 ........3.15..........12.6x ........2.20-5.20
2005 ........6.59 .........0.59 .........0.36.........3.46 .........12.3x ........3.10-7.40
2006 ........7.80 .........0.94 .........0.69 ........4.20 .........13.2x ........4.90-17.10
2007 ........9.01 .........1.15 .........0.88 ........5.23 .........16.3x .......10.10-17.60
2008 ...... 11.02 ........1.56 .........1.21 ........6.58 .........11.1x ........10.00-19.30
The last time EZPW’s PE was this low, shares went up 500%. If you look at FCFS’s PE of 15 (remember FCFS was another $$$MR. MARKET$$$ winner), you can see that EZPW is way undervalued.
So..how are the earnings these days?
EZCORP's net income for the quarter increased 39% to $20.0 million ($0.40 per share) compared to $14.4 million ($0.29 per share) for the third quarter of fiscal 2009. Total revenues for the quarter increased 17% over the prior year period to $173.5 million.
Consolidated operating income improved 34% to $28.8 million (27% of net revenues) from $21.5 million (24% of net revenues) in the prior year quarter. Store level operating income improved $9.2 million in the Company's U.S. Pawn operations, $0.3 million in its Empeno Facil Mexico Pawn segment and $3.1 million in its EZMONEY operations.
EZCORP's net income for the nine-month period ended June 30, 2010 increased 46% to $69.4 million ($1.40 per share) compared to $47.5 million ($1.00 per share) for the prior year nine-month period. Operating income for the nine months improved 43% to $101.8 million (31% of net revenues) compared to $71.2 million (27% of net revenues) for the prior year nine-month period.
For the full year 2010 the company expects earnings per share of $1.81 and based on the current price of the stock that would put the P/E ratio under 10. Remember what I said about the last time its PE was this low??
So if you are looking for $$$MR. MARKET$$$ to make an earnings prediction, don’t worry about it. The value on this stock and its historical performance means that its stock price ain’t gonna go down from here. If it doesn’t go down, it means it has to go up.
Here’s what the bosses have to say:
Commenting on these results, Chief Executive Officer, Joe Rotunda, stated, "The June quarter was another great quarter for EZCORP. Each of our business segments and strategic affiliates produced robust revenue and earnings increases over the prior year quarter. In addition, our consolidated pawn and EZMONEY loan portfolios reflect strong, high quality growth over last year of 19% and 28%, respectively. These results clearly demonstrate strong consumer demand for our assortment of products and services and the value and convenience they provide in today's financial marketplace."
“It’s probably an influx of additional customers that we’re seeing now, that possibly see the value in the product offerings that we have, if you look the auto title business and see that volume that was generated there, the vast majority of that business, our new customers who haven’t been in our store before and that’s not just in the EZMONEY business it’s also in our pawnshops we have just a little over 60 pawnshops that also offer the auto title loan. In both segments those customer are new to our stores. It’s more difficult to tell that in the pawn and payday loan segments as it relates to those base products. But I think we have seen with the increase in transactions at least a good number of new customers coming into our stores. Due to our portfolio growth, I think will certainly indicate that our portfolios growth.
So the strong double-digit pawn growth that you had is certainly sustainable would indicate that it’s sustainable, because the customer continues to redeem the merchandise at a higher level you made it before. The purchases that were making what would have been in many cases forfeitures before, so were able then to take care of that customer immediately and the scale itself has grown so significantly. I think that much of that has to be from new customers coming in. So is it sustainable right as we look at the growth of our portfolios and the fact that they continue to grow and we think certainly it is. With the payday loan, auto title loan and installment loans as well, you look at the growth that we’ve had over last year and it’s almost 20% growth in portfolio and the redemption rate of the customer is at higher level then it has been in the past as well. So it just seems that the customers coming in and satisfying our obligations, satisfying your need for cash I would think become part of our consumer base as we go forward.”
The Company's President and Chief Operating Officer, Paul Rothamel, added, "We are very pleased by the strong growth and customer acceptance of our expanded offerings, and recently achieved a number of significant milestones. We acquired thirteen domestic pawn stores in June, giving us an entrance to the Chicago area and strengthening our number one position in Florida; we surpassed 70 new store openings year-to-date; and we opened our 100th pawn store in Mexico on July 2."
Rothamel concluded, "We continue to drive earnings growth with an intense focus on product and geographic diversification, new store growth and superior customer service. We are increasing our expected earnings per share for the full fiscal year ending September 30 to $1.92, representing a 35% increase from $1.42 in fiscal 2009."
Remember, this company is GROWING. Heck, I’ll take his $1.92 and multiply it by a PE of 12 (look at the historical average PE’s) to get me a share price of $23.04. That’s greater than my target and means another $$$MR. MARKET$$$ winner is born.
I am HUGE! Bring me your finest meats and cheeses. Let me know if you liked this stock and this write up.
$$$MR. MARKET$$$
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