Date: 5/22/12
Price: Free
SmallCap Network provides comprehensive research and opinions on EZPW, CSH and AEA.
Payday Lenders, Pawn Shops are Strong when Wall Street is Weak (EZPW, AEA & CSH)
Alternative Lenders Serve a Huge Market with High Margins
For the small cap investor, publicly traded stocks pawn shop and payday lenders such as EzCorp Inc (NASDAQ: EZPW), AdvanceAmericaCashAdvanceCenters (NYSE: AEA), and Cash America International (NYSE: CSH) offer a way to profit from the poor US economy. Unlike their customer base, the financials of each stock are solid. If the economy continues to fall, again, unlike their customers, the stock price for each company should continue to rise.
EzCorp Inc, a short term consumer loan and pawn shop operator with about 1000 stores in the US and Mexico, has more than doubled in share price in the last year. Now trading around $34.30, its year low was about $20. Profits have jumped by an over average of 46 percent over the past five years. Earnings per share have increased by more than 37 percent over the past year with gross margins over 60 percent. Although the customer base is most likely suffering from excess credit woes, the same cannot be said for EzCorp as it is virtually debt free; and has been expanding aggressively in all cash deals. In contrast with its client base is the stable foundation of EzCorp, with a below average beta and little in the way of a short float. While pawn shops maybe looked down upon by some, they are not by sophisticated investors: institutions own 84 percent of EzCorp stock.
Like EzCorp, Advance America Cash Advance Centers (NYSE: AEA), a pay day lender, has seen its stock more than double over the past year, from a low of $4.10 to close over $9.20 recently. Institutions own almost 76 percent of Advance America stock. There is little debt. Gross margins are almost 34 percent. Advance America has strong institutional ownership at over 74 percent.
Just about doubling in price too has been the pay day lender, Cash America International (NYSE: CSH). Its gross margins are almost 60%. Cash America has a modest relative strength index, at 49.94. Year to date, the shares of Cash America have risen more than 44 percent. It is trading more than 12 percent above its 200 day moving average.
As the economy continues to weaken, the stock prices for EzCorp Inc., Advance America Cash Advance Centers and Cash America International have grown in strength. While the financial sector has been the worst performing sector of the market this year, "desperation stocks" have been one of the best. As Wall Street weakens, these alternative lenders to Main Street will strengthen.
Jonathan Yates is a paid contributor of the SmallCap Network. Jonathan Yates's personal holdings should be disclosed above. You can also view SmallCap Network's complete disclaimer and disclosure.
Good "Payday" for Investors
You are absolutely right. While all three stocks fell dramatically in 2008 with the onset of a recession, they subsequently rose at a much faster rate than even some of the most robust tech stocks. Pending state regulations on payday loan lenders might jeopardize this growth but there is one strong trend that plays in favor of the mentioned corps. Namely, the credit crunch of the mainstream lending institutions (like it always happens during a recession) and ruined credit history of a huge number of the population as a result of the mortgage crisis and ensued consumer debt crisis.
