Thd stock of the month for June is EZCORP, Inc. (symbol EZPW). EZPW is basically in two businesses: the bulk of its business comes from pawn shops and it also has a small portion of its efforts in the payday loan space. It has a market cap in the 1.5 billion dollar area and a 52 week trading range of $17.33 to $33.31. It closed Friday at $31.30, near the high end of the range, so the question, of course, is why is it being recommended now? First, EZPW in many ways is a countercyclical play. If the economy continues to sputter as it has been doing, there will be more, not less business for pawn shops. Business at the pawn shops also rises as the price of gold increases since it becomes more profitable to sell that old gold ring or pin to raise cash. Second, the stock has been held down due to fears about the future of the payday loan business, but EZPW has such a small position in that market now that it makes no sense to stigmatize the company on that account. Further, the fear of Texas curtailing payday loans is now over for at least two years with the recent adjournment of the Texas legislature. Third, EZPW is expanding in new markets outside the USA at a rapid clip. So far, the management has played this just right.
The current estimate for earnings for the fiscal year ending September of 2012 is $2.95 per share. That means that EZPW is selling for just 10.6 times earnings. With all of the likely accelerators to EZPW growth and earnings, this multiple is just too low. An increase to a P/E of 15 would send the stock up to $44.25, a move that it could easily make in the next twelve months.
EZPW pays no dividend, but it has very nicely priced options. The September 35 calls could fetch in the area of $1.10 at the moment. That would provide an annualized return of 35% if the stock goes above the strike price at expiration. It also provides a nice income from the stock if the rise in price takes longer.
EZPW is a good stock to add to one's portfolio.
DISCLOSURE: I have no current position in EZPW.
H/T to Steve Brill whose analysis forms the basis for much of this recommendation.
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