It would seem that Apple (AAPL) would be a pretty good stock to use as a standard for comparison of other stocks that are claiming to be great growth stocks. After all, Apple has delivered average annual returns of 45.2% per year over the last ten years!
What if I told you that there was a financial stock that has delivered almost exactly the same returns as Apple and is currently trading at just 8.7 times forward earnings with an expected five year average growth rate of 15% per year?
What if I also told you that the company has been averaging 30% earnings growth over the last five years? In additon to this, the stock is currently in one of the sweet spots in the market, as it is a small-cap stock with $1.6 billion in market capitalization.
Lastly, what if I showed you a chart showing the stock currently breaking out? Let's begin there, with a chart of EZCorp (EZPW):
As you can see, the stock is currently breaking out of 4-month consolidation. Now let's step back for a moment and take a look at a ten-year chart of the stock:
Yes, EZcorp, a pawn shop operator, is the stock that has almost matched the performance of Apple over the last ten years. Remember, the last ten years has not been very good for the stock market. In additon to this, the last five years have not been very good for our economy. This is one of the main reasons that pawn shop operators have been able to flourish. Pawn shops do well in a weak economic environment.
Soaring gold prices have also led to soaring pawn shop stocks. I have written several articles about the fact that pawn shops have clobbered the performance of the banks over the last 1, 3, 5, and 10 years. I have also appeared on Bloomberg with Pimm Foxx discussing this phenomenon. Here are the performance numbers that back up my claim that Ezcorp has almost matched the performance of Apple.
Data from Best Stocks Now iPhone & Android App
As you can see, EZPW has delivered an average annual return of 43.5% over the last ten years. By contrast, Apple has delivered 45.2%. The S&P 500 has only delivered 2.0% per year.
Here is another interesting fact about the stock of EZCorp: During the financial crisis and market meltdown in 2008, EZPW was up 34.7%. I don't think that it is too hard to figure out why. By contrast, Apple was down 56.9% that year.
Let's take a look at the current valuation of EZCorp. The company is expected to earn $3.50 per share next year. This gives it a forward PE ratio of just 8.68. This compares with an average annual five year growth rate of 15%. This computes to a very favorable PEG ratio of 0.58, the same as Apple's PEG ratio.
If EZCorp can continue to grow those earnings by 15% per year over the next five years, they have earnings power of $6.12 per share, five years from now. Ezcorp has a current PE ratio of 11 and it has had a range of 9-15 over the last four quarters.
I am using a very conservative multiple of 9.5 on forward earnings to project a five year target price of $58.15 per share. This gives the stock upside potential of 91.5% over the next five years. I like to buy stocks that have 80% or more upside over the next five years. Here is what that valuation looks like.
Data from Best Stocks Now iPhone and Android App
Ezcorp has had a terrific track record of performance over the last ten years. EZCorp continues to operate in an an economic enviroment that favors their business model. The chart of EZCorp looks very good. Lastly, the current valuation is quite attractive.
It should be noted that EZCorp is an very aggressive, small-cap growth stock. It is not suitable for moderate to conservative investors. It should be considered, however, as a component of a well-diversified, aggressive growth portfolio.
Disclosure: I am long EZPW.