DrBenway

If We're in a Recovery, Why Are Pawn Shops Breaking Out?

I think that EZPW out-performance story is quite simple. Earlier in the year they were lowering guidance while now they are upgrading. (Just check analysts revisions).

The company underperformed earlier as it faced legislative uncertainties on one hand (Durbin in Senate and Gutteirez in Congress) and low inventory turnover in pawn shop on the other. For several months early in the year, customers just stopped buying while the loan demand kept high and the inventory piled up.

The environment now is much more favorable:

1. High gold prices - the jewelery part of the inventory is appreciating
2. Nothing in local legislative pipeline imminent (EZPW only does business in TX, FL, and NV)
3. Nothing threatening in Congressional pipeline either.
4. International expansion
5. Pawn shop merchandise is moving better (inferior good in tough economic times)

Also note that EZPW only growing the pawn shop part of its domestic business (over 70% of its revenue) as opposed to pay-day lending, which is stagnant. The former has never been under serious legislative threat.

All in all, forward P/E of under 9 with 10% growth rate and no net debt sounds like a good deal to me. It should also be noted that small cap underperformed large cap during the early market rally but has been coming on strong in the last month.

I am long EZPW so my view may be a bit biased.

Giving up Upside in EZCORP

Dude, you forgot to do your homework and read 10K before possting. PayDay lending is less than 20% of their business. They are 80%+ pawn shop operators.