Payday Advance Focus Makes EZCORP Solid Stock
By Paul RizzoPayday Loan Writer
Motley Fool offers readers stock and financial tips. Here’s what it has to say about the future of one pawn shop/payday loan company:
What management says:
Cash loans are going to continue to become a much larger part of EZCORP’s future as 100 new EZ Money stores will be opened this year. In 2006, that expansion of the payday loan concept - EZCORP’s “signature loans” - caused revenues to nearly double to $7.7 million, while pawn shops, which haven’t had a single new store added since 2000, grew 17% last year.
President and CEO Joe Rotunda noted that the company opened 46 new cash advance loan shops in the fourth quarter alone, marking it as the third consecutive year of 100 or more new store openings.
He plans to open a few more stores in Mexico, a market that was already heavily using the Texas border stores. The company was forecasting per share earnings of $0.58 to $0.60 for the first quarter, but that was before the three-for-one stock split the board authorized in November, so analysts are on board for EZCORP to hit the high end of their range.
What management does:
As EZCORP continues to expand into payday cash advance lending, the costs associated with running those shops continue to drop in comparison to its pawn shops, which require half the personnel the latter does.
Moreover, with pawn shops largely dependent upon the price of gold to determine both its profits and its costs, the easy money might be over there for awhile. Profits have been fat - gross margins on pawn sales grew from 38.5% in 2004 to 39.8% in 2006 - but if inflationary pressures subside as oil prices stabilize, we may see precious metals like gold come down as well.
Advice:
Better returns at higher rates with fewer expenses make it easy to see why EZCORP is turning to faxless payday loan lending, even if it has to comply with the full set of federal and state regulations that have been imposed on the industry in the past few years.
With most of its operations centered in and around Texas, EZCORP is largely dependent upon the local economy, though it is branching out in the U.S. and now Mexico.
The easy money may already have been made in this stock. However, if the subprime lending market is in as much trouble as analysts contend, then short-term cash advance lenders may see some opportunities for good growth yet.
