First Cash Financial Services, Inc. (FCFS): Capitalize on the Age of Immediacy With This Stock

Peer comparison

First Cash’s peers include Cash America International, Inc. (NYSE:CSH) and EZCORP Inc (NASDAQ:EZPW)

EZCORP has made much headway with its efforts to reduce its reliance on the U.S. market in recent years. While it used to derive significantly all of its revenue domestically, foreign markets, including Latin America, were responsible for close to a quarter of EZCORP’s fiscal 2012 revenue. In terms of business segments, consumer loans accounted for about 20% of EZCORP Inc (NASDAQ:EZPW)’s fiscal 2012 sales, exposing it to the adverse impact from any tightening payday loans regulations. In contrast, First Cash Financial Services, Inc. (NASDAQ:FCFS) has seen its efforts to reduce payday loans operations in recent years pay off, with consumer loans now representing less than one-tenth of its revenue.

Cash America International, Inc. (NYSE:CSH) is no longer a good proxy for the pawnshop industry, although it is one of the largest pawnshop operators with EZCORP. It has shifted its focus to online consumer loans, with this segment accounting for about 37% of its revenue in fiscal 2012. The growth in Cash America’s online consumer loans business is based on several secular trends such as the increasing amount of e-commerce activity and more people conducting their investment, billing, and banking activities online.

First Cash Financial Services, Inc. (NASDAQ:FCFS) trades at a significant premium to its peers with a forward P/E of 14.5. In contrast, Cash America and EZCORP are valued by the market at 8.2 and 6.5 times forward P/E. However, First Cash also delivered a higher ROA of 18.3%, compared with ROAs of 9%-10% for Cash America and EZCORP.

Conclusion

The market has rightfully accorded higher valuations to First Cash, which is the next best alternative to banks and less exposure to investor concerns. However, First Cash is not cheap with a PEG of 0.96, close to a ratio of 1 which Peter Lynch will deem as fairly reasonable valuations.

The article Capitalize on the Age of Immediacy With This Stock originally appeared on Fool.com and is written by Mark Lin.

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