Stock Analysis & Ideas

EZCorp Stock: Potential Risks, Potential Upside

EZCorp (EZPW) is the leading operator of pawn stores across North America and Mexico. The company mostly offers pawn loans by taking collateral property such as jewelry and valuable objects. EZCorp provides a number of convenient options for customers to liquidate their assets relatively quickly, including, of course, non-recourse pawn loans. It also sells used goods to clients currently seeking valuable items.

In addition, EZCorp also operates a web-based platform called Lana to manage pawn loans.

I am neutral on EZCorp as the current analyst price target indicates strong upside potential over the next year, and the valuation multiples look reasonable relative to historical averages. At the same time, the business does face some geopolitical risk and lacks any meaningful moat.

Strengths

EZCorp was founded in 1974 with a handful of stores and grew to operate 234 pawn shops in nine states. Today, the company operates over 500 stores in the United States alone, with several new stores along the Texas-Mexico border. The company has demonstrated the ability to perform well in the market.

It currently has 6,500 employees from around the world. Its Canadian stores operate under the brand name, CashMax.

EZCorp operates in a market that has traditionally stayed aloof from recession. The strong industry coupled with its globalized presence and scale of operations ensures that EZPW shares continue to perform well. EZCorp also has a dominant online presence, which is useful in the current digital market. 

Recent Results

EZCorp registered revenue of $174 million in the third quarter of 2021. This means that it continued to make significant growth in North America. Revenue beat consensus estimates by 0.55%. However, it is lower compared to the revenue of $210.2 million in the third quarter of 2020.

Valuation Metrics

EZPW stock looks reasonably priced here as it trades near its historical averages on a forward EV/EBITDA ratio and forward price-to-normalized-earnings basis. Its forward EV/EBITDA ratio is 7.2 times compared to its historical average of 6.1 times, and its forward price-to-normalized-earnings ratio is 9.7 times compared to its historical average of 16.16 times.

Meanwhile, analysts expect revenue to grow by 9.3% in 2022 and 8.4% in 2023, while EBITDA is expected to grow by 25.5% in 2022 and 23.1% in 2023.

Wall Street’s Take

According to Wall Street analysts, EZPW has earned a Hold consensus rating based on just one Hold rating assigned in the past three months. Additionally, EZCorp’s price target of $9.00 puts the upside potential at 47.3%.

Summary and Conclusions

EZPW stock is an interesting investment opportunity as it is reasonably priced, has significant upside to its average price target, and has solid growth potential in front of it.

At the same time, it only has a Hold rating, and the business operates in a geopolitically uncertain region in Mexico. Furthermore, it could face growing competition methods business lacks any meaningful moat.

As a result, investors should keep the risks in mind realize that this is a speculative investment despite its attractive growth valuation. While it could generate strong returns from here, to compensate for the risk, investors may want to wait for a pullback in the stock price before adding shares.

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