By:
Matthew Vieth, AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is mentioned
in this article.
Summary:
• FirstCash Inc. (NYSE:FCFS) operates retail-based pawn stores
throughout the United States and Latin America and has placed emphasis on
un-tapped regions of Latin America with recent penetration into this market as
well as geographic areas in the United States with “unbanked” or “underbanked” Americans.
• The Latin American market
segment has had strong revenue growth of 25% and increasing margins.
• The United States
market segment has experienced positive margin growth of 3% which is expected
to continue rising.
• An economic slowdown which
many believe could be on the horizon represents a potential opportunity for FCFS
as pawn shop business thrive in these environments.
• FCFS stock price has
grown roughly 50% since being added to the AIM portfolio at $67 in December of
2017.
Key
points:
After a fourth quarter that performed weaker than
expectations, FCFS rebounded well in Q1 of 2019 with growth acceleration in
Latin American based stores and better margins in their United States
operations. Revenue growth returned to a 4% growth rate which surpassed the
expectations of the market. In the United States, business sales decreased by
3% due to the reduction in payday lending but other segments performed well
which led to a 3% increase in gross margin. The United States operations stand
to grow even further as future market outlooks predict the possibility of
economic slowdowns. Pawn services perform better in underperforming economies because
people have less access to other forms of credit and people are in greater need
of cash which they pawn goods for.
In the Latin American market
segment, revenue growth was 25% in part from the 23% increase in core pawn
revenue and from 19% increase in retail revenue with fee revenue rising 32%. As
acquired and recently built stores continue to operate, it can be expected that
margins will also increase as inefficiencies from store growth subside. Like in
the United States, operations here can also benefit from lackluster economies.
What
has the stock done lately?
Over the past month, FCFS
stock price has increased 13% because of its continued growth in acquiring new
stores and growing margins both in the United States and Latin America. With
the possibility of economic slowdowns in the United States and elsewhere, FCFS
stands to benefit as more consumers seek alternate financing and cash options
at pawn shops. With the large growth that FCFS has gone through in the past
they are strongly positioned for this economic change.
Past
Year Performance:
Over the past year, FCFS
has grown by 11% increasing from $90 up to $100. The stock had more volatility
than normal thanks in part to the market correction in late 2018 but rebounded into
positive gain territory. The strong growth rate of FCFS and the increasing
acquisitions have helped shaped this business over the past year into a strong
competitor of the retail pawn shop market space.
Source:
FactSet
My
Takeaway:
FirstCash Inc. is a
unique business model that is positioned within a market space where it has the
potential to continue thriving. With economic slowdowns potentially on the
horizon, seeking opportunities that take advantage of this is essential. FCFS
is a great option to do this with strong growth potential still and increasing
margins from new stores.
Source:
FactSet
