We came across a bullish thesis on EZCORP, Inc. (EZPW) on Value Degen’s Substack by Unemployed Value Degen. In this article, we will summarize the bulls’ thesis on EZPW. EZCORP, Inc. (EZPW)’s share was trading at $11.53 as of Nov 4th. EZPW’s trailing and forward P/E were 9.61 and 9.15 respectively according to Yahoo Finance.
A loan officer discussing the terms of a loan with a customer in a pawn store office.
EZCORP (EZPW) presents a compelling investment opportunity and it is well-positioned to benefit from the economic divergence in a K-shaped recovery and the rapid growth in Latin America. In a K-shaped economy, wealthier individuals continue to thrive while the middle class faces mounting financial pressures, which drives sustained demand for pawnbroking services. This trend is particularly strong in Latin America, where economic growth has accelerated since the Covid-19 pandemic. EZCORP’s pawnbroking model thrives on high-interest, short-term loans backed by valuable assets like jewelry. Jewelry makes up 60-65% of the company’s U.S. inventory and roughly 30% of its inventory in Latin America. By focusing on larger loans against jewelry, EZCORP is gaining competitive traction in a fragmented market.
With rising precious metal prices—up by 30% over the past year—EZCORP’s significant jewelry inventory, valued at $171 million, stands to appreciate, creating a favorable financial boost when these assets are sold. The company also benefits from Latin America’s economic momentum, especially in Mexico, where GDP per capita has grown at an impressive 7% annual rate since 2020. Mexico’s lower labor costs, at around one-third of China’s, and its access to Texas energy resources support EZCORP’s expansion in the region.
With 1,258 locations as of Q3 2024, EZCORP operates 541 stores in the U.S., accounting for 40% of its locations but generating 80% of its EBITDA. This is due to the company’s recent turnaround focus in the U.S., while improvements in Latin America, where it also operates in Mexico, Guatemala, El Salvador, and Honduras, are still gaining traction. Activist investor Kanen Wealth Management, which holds a 4% stake, has driven a strategy emphasizing U.S. profitability, leading to increased stability and growth. Over the past four years, EZCORP has expanded its store count by 5.5% annually, with revenues growing 8.5% per year and gross profit bouncing back significantly from pandemic lows.
EZCORP’s historical issues, however, remain relevant, particularly regarding governance. Phillip Cohen, the executive chairman, has held control since 1989, and the board’s stability has enabled questionable capital allocation decisions, including failed acquisitions outside of the core business. EZCORP’s underperformance compared to FirstCash (FCFS), which has almost identical margins but a far better return record, underscores these challenges. The recent activist-driven turnaround has improved financial discipline, but the company’s convertible debt of $300 million—restructured multiple times—continues to weigh on the balance sheet. Although management has authorized buybacks, only $3 million was used last quarter, even with a stock valuation significantly below tangible book value.
EZCORP’s valuation highlights its potential: it trades at a substantial discount to peers, with a price-to-book ratio of 0.79 compared to FCFS’s 2.37, a price-to-sales ratio of 0.86 versus FCFS’s 1.43. If management remains disciplined, reducing debt and avoiding poor acquisitions, a re-rating of EZCORP’s stock could yield significant upside, potentially tripling in value. Although governance concerns persist, the company’s exposure to Latin America, rising precious metal prices, and demand from lower-income segments provides a unique growth story. Despite some caution around management, EZCORP is a promising investment candidate for those looking to capitalize on a growing business with deep-value potential.
EZCORP, Inc. (EZPW) is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 24 hedge fund portfolios held EZPW at the end of the second quarter which was 22 in the previous quarter. While we acknowledge the risk and potential of EZPW as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than EZPW but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.