Stock Analysis & Ideas

EZCORP Stock: Value in Pawn Shop Empire?

I am neutral on EZCORP (NASDAQ: EZPW) as its strong growth potential and attractive price-to-normalized earnings ratio are offset by a neutral position from Wall Street analysts, and an elevated EV/EBITDA ratio.

EZCORP, now EZMoney Tario, is an American pawn shop operator based in the U.S., with services that extend across Mexico and Canada.

Strengths

The company was founded in 1989 in Austin, Texas, and is the second-largest pawn shop operator in the U.S. It has controlling interests in other businesses, including those based in Mexico that provides consumer loans, as well as those that operate buy/sell stores.

The company offers pawn lawns in the U.S. and Latin America, as well as selling merchandise collected as collateral forfeited from said pawn loans. It currently has around 1,000 stores in operation across North and South America.

Recent Results

As of September 2021, EZCORP reported total revenue of $192.4 million, showing a 13% increase since the previous year’s $166.8 million during the same period. Net income for the fourth quarter of 2021 stood at $1.6 million, where the previous year had a loss of $23.3 million.

The total revenue for the year ended September, 2021, stood at $729.6 million as compared to the $822.8 million for 2020. Net income for the year was $8.6 million, showing a significant increase from the previous year’s loss of $68.5 million.

Diluted earnings per share for the fourth quarter was $0.03 compared to the loss of $0.42 in the same period last year.

A significant portion of total revenues can be attributed to merchandise sales and pawn service charges, totaling $111 million and $72 million, respectively.  A large portion of these sales can be attributed to the U.S., which makes up $139.6 million of total revenues, whereas the remaining $52.7 million can be attributed to operations in Latin America.

Net inventory also increased about 16% year-over-year, which can indicate an increase in pawn activity.

Stagnation in company operations can be attributed to the effect of COVID-19, and different variants that affected Latin America. 

Valuation Metrics

EZPW stock looks a bit pricey at the moment as its EV/EBITDA ratio is 7.9x which is elevated compared to its five-year average of 6.2x. That said, its P/E ratio is 11.2x, which is cheap compared to its five-year average of 16.3x.

Wall Street’s Take

From Wall Street analysts, EZPW earns a Hold analyst consensus based on zero Buy ratings, one Hold rating, and zero Sell ratings in the past three months. Additionally, the average EZCORP price target of $8.50 puts the upside potential at 18.1%.

Summary and Conclusions

EZPW should generate solid growth in the coming years with high single-digit revenue growth, 20% plus EBITDA growth, and 50% plus annualized earnings-per-share growth.

That said, the company is expensive based on some metrics and Wall Street analysts are neutral on the stock.

On the other hand, the stock looks cheap on a P/E basis, especially when you consider the impressive growth multiples forecast in the coming years. As a result, while the stock is somewhat speculative, it might have solid potential as an asset.

Disclosure: At the time of publication, Samuel Smith did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates  Read full disclaimer >

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