Is EZCORP’s Stock Worthy of Your Cash Now?

With shares of EZCORP (NASDAQ:EZPW) trading around $19.24, is EZPW an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

EZCORP announced the acquisition of a Delaware-based online payday lender for $50 million in either cash or stock, at the company’s discretion.  There are few world-class online payday lenders in the United States, and those that have achieved this level of success have done so by developing robust and effective underwriting and data analytics.

This is only the second purchase of an online entity by a brick-and-mortar operation.  The last one was CashNetUSA by Cash America (NYSE:CSH), which turned out to be a blockbuster for the acquirer.

The company has said it will facilitate the expansion of online lending internationally, which will significantly enhance revenue in the coming years.

E = Debt to Equity Ratio is Less than 25%

EZCORP traditionally has carried very little debt, but took on close to $200 million this past year to help finance acquisitions, such as the online lending operation.  With $834 million in shareholder equity, the debt-to-equity ratio is only 24%.

Keep in mind two things.  First, the debt is used for accretive purposes, rather than to finance the core business. Second, the total cash and long term investments is $366 million, so it vastly exceeds the amount of long term debt that actually exists.

EZCORP is also in a strong position along with most of its peers on this metric.

Cash America has $503 million in debt, $63 million in cash, and shareholder equity of $903 million, giving it a D-to-E ratio of 56%.  Dollar Financial Group (NASDAQ:DLLR) sits on $11 million in debt, $594 million in cash, long-term investments, and shareholder equity of $461 million, giving it a D-to-E ratio of less than 3%.  Note, however, the $900 million of goodwill sitting on the balance sheet.First Cash Financial Services (NASDAQ:FCFS) has always managed its debt very well, which is why it presently has no debt, $70 million in cash and $315 million in equity.

QC Holdings (NASDAQ:QCCO), the smallest of the group, has $27 million in cash and long-term investments against $14 million in debt, and $79 million in equity, for a debt-to-equity ratio of 18%.

T = Technicals on the Stock Chart are Improving

As of November 30, 2012, the stock price is 4.2 percent above its 20-day exponential moving average, or EMA;right at the 50-day EMA, and 18 percent below its 200-day EMA.

The stock is down about 30% since the beginning of 2012, but has bounced 17% off its 52-week low and is rising.

E = Earnings are Increasing Quarter over Quarter

EZCORP has been posting increasing earnings every year, reflecting the growth in pawn shops in the US and Mexico.

2008 2009 2010 2012 2012
Revenue (millions) 457 597 733 869 992
Diluted EPS ($) 1.21 1.42 1.96 2.43 2.81

(Fiscal year is October-September)

Earnings can be erratic for EZCORP, because the December quarter tends to be its strongest, as more people take out loans for holiday needs.  In addition, the company has seen some weak quarters as scrap gold volume has fallen off significantly.

9/30/11 12/31/11 3/31/12 6/30/12 9/30/12
Revenue (millions) 234 249 256 229 258
Diluted EPS ($) 0.72 0.78 0.73 0.55 0.75


T = Trends Support the Industry in which the Company Operates

The economy has been very, very kind to pawn shop operators.  As more people became unemployed during the recession, they could not have access to payday loans as that credit product requires customers to have a job.  However, anyone can pawn something, and when gold shot through the roof, pawn shops saw a huge increase in business.

These trends are continuing, along with slight improvement in the payday loan business domestically.  In addition, concerns regarding the CFPB meddling too much in the short-term credit market have decreased.  Richard Cordray has wisely focused on providing customers with transparency, which legit industry players have been utilizing for years.


EZCORP is one of many companies that serve an enormous population in the United States, and an even greater population in Mexico – the underbanked.   Many people do not trust the banks nor do they like the fees that are assessed, many of which can be difficult to discern.  Although the storefront payday loan business has matured in this country, various legislative efforts are being undertaken to open up states that had previously been closed off.  EZ’s purchase of the online lender gives it access to a part of the market that has been seeing large growth both domestically and internationally.

The company is well-capitalized, and runs a very efficient business.  The $7.2 million annual payment to a long-time company consultant angers many shareholders, but since the company’s stock is non-voting (another sore spot), there’s nothing that can be done.  Fortunately, this employment contract has brought good tiding to EZ.

The stock is stupid cheap, trading at only 7 times this year’s earnings.

Because of this, and the metrics above, EZ is an OUTPERFORM.  Even though the company expects a few challenges in coming quarters from reduced gold volume, its acquisitions and core pawn business will allow it to pump out free cash flow for some time to come.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.