Thursday, August 7, 2008

Pawn Shops Starting to Hit Wall Street Awareness

It looks like the pawn shop thesis we've been advancing is starting to catch the attention of Wall Street. Always a bull market somewhere...

  • There's a small segment of the retail space that's suddenly doing very well, according to Utendahl Capital Partners analyst Daniel O'Sullivan. It's the pawnshop business. He has several recommendations for investors.
  • "Given the current tough economic times for the consumer, people are looking for reasonably-priced merchandise -- TVs, computers, electronics -- so that's really driven growth for them," O'Sullivan told CNBC. "Plus, we saw a benefit this quarter, too, with the economic stimulus checks helping out the pawn companies."
  • He also notes that much of the inventory in pawnshops is in jewelry, which has gained greatly in value from soaring gold prices.
  • His favorite pawnshop company is EZCorp [EZPW 18.42 0.53 (+2.96%) ]. "They are in the process of closing on an acquisition of privately held Value Pawn," he said, "I think that's going to add about $125 million in revenue next year...the company's done a wonderful job of moving into the Mexican pawn market."
  • Other companies in the space on his list are Cash America [CSH 43.79 -0.73 (-1.64%) ] and First Cash Financial Services [FCFS 19.22 0.06 (+0.31%) ].
Technically, these stocks have held up very well of late. After some huge moves they need to digest, we should see another move up as the economy continues to falter... err, umm... as the economy recovers any minute now. Only fly in the ointment is the cash advance side of their business, but the pawn shop side is where we really want to be.

[Jul 24: Cash America (CSH) and EZCORP (EZPW) Both Report Today - Starting Small Stake in EZCORP]
[Jul 10: Another Payday Loan/Pawn Shop Breaks Out on Higher Guidance - A Trend Seems to be Afoot]
[Jul 7: Missed Opportunity in Cash America]

Long EZCORP in fund and personal account

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