The stock market has been on a nice run over the past few weeks, and the Nasdaq Composite has been running with the bulls, up more than 35% year to date. While stock valuations are creeping back up, it is a good time to go shopping for values and stocks that are built for an uncertain economic outlook.
One stock that might fit that bill for investors is EZCorp (NASDAQ:EZPW). Hereʻs why this cheap stock could soar next year.
Pawn stars
EZCorp owns several chains of pawnshops throughout the United States, Mexico, and Central America. Its brands include EZ Pawn, Value Pawn and Jewelry, USA Pawn, Cash Pawn, Jerryʻs Pawn Shop, and others. It also offers pawn loans collateralized with personal property, meaning the pawn shop assesses the value of the item and give you a loan, holding the item as collateral.
EZCorp tends to do well when the economy is struggling or the market is down. In 2008, when the market crashed 38%, EZCorp was up 34%. In 2016, when the U.S. gross domestic product (GDP) only grew 1.6%, EZCorp stock was up 113%. In 2022, when inflation and high interest rates led to a bear market, EZCorp stock was up 11%, easily beating the indexes. This is because its loans and services are typically in higher demand when people canʻt get traditional loans, need cash, or are buying discounted items to save money.
The company’s stock price is up by about 2% year to date after a recent decline following the release of its fourth-quarter and full-year earnings results on Nov. 15. EZCorp stock dropped by about 4%, possibly because it missed earnings estimates by a slight margin of 2 cents per share. However, it looks like a buying opportunity because the firm had record revenue and some solid growth potential.
Record revenue and loans
EZCorp saw its revenue increase 16% year over year in the fourth quarter to $271 million, with pawn loans outstanding (PLO) up 17% to $246 million. Both revenue and PLO were records for the company. As a result, its net income jumped 41% to $10.3 million or 15 cents per share for the quarter.
For the full fiscal year, EZCorp’s revenue jumped 18% to $1 billion, but its net income for the year was down 23% to $38.5 million, mainly due to a $26.3 million goodwill impairment for one of its brands related to legislative changes in its native country that impacted the business. The full-year revenue total was also a record for EZCorp.
The outlook for the company is promising for a few reasons. First, it is continuing to expand, mainly in Central America, where it opened 19 new stores in the last quarter, including 10 in Mexico, where there are now 549 stores. EZCorp also saw its EZ+ Rewards loyalty program grow 15% in the quarter to 3.8 million members.
“The strategies we have implemented to win and retain customers and drive customer engagement have been extremely successful and are important in achieving our strong store metrics,” CEO Lachie Given said, adding that the firm unveiled a three-year strategic plan in October to focus on operating excellence and expanding its customer base.
“We maintain a robust acquisition pipeline, and our objective is to significantly grow our store footprint in an exciting global industry. We have a strong balance sheet and the liquidity to execute on that strategy,” Given said.
Cheap valuation with stiff tailwinds
EZCorp also improved its cash position, increasing its cash and cash equivalents by 7% year over year to $228 million and boosting its operating cash flow to $102 million from $66 million in the same quarter a year ago. This should help it fund its expansion activities.
The combination of its operational efficiency, rapid expansion, and the likelihood of uncertain economic conditions in the U.S. and its markets should allow EZCorp to continue to grow. The consensus rating among analysts is a strong buy with a price target of $14 per share — a 69% increase over its current price.
EZCorp is also cheap, trading at 12 times earnings, down from 21 in June, with a forward price-to-earnings (P/E) of 8.5. The recent price dip might offer a good buying opportunity for investors.
Disclaimer: All investments involve risk. In no way should this article be taken as investment advice or constitute responsibility for investment gains or losses. The information in this report should not be relied upon for investment decisions. All investors must conduct their own due diligence and consult their own investment advisors in making trading decisions.
