Based on the booming equities space – particularly the technology sector – it’s tempting to believe that the economy is holistically performing well. However, the steady rise of pawn shop operator FirstCash (NASDAQ:FCFS) tells a different tale. If circumstances were so great for everyone, the pawn industry would lose relevance. Instead, the evidence points to the opposite dynamic. Pawn shops, in some sense, are thriving.
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With a surprising number of people being unbanked or underbanked, these institutions offer the only avenue of financial credit. Customers are turning to pawn shops to make ends meet, and I would venture to guess that they’re not exactly generous on the terms. After all, they need to turn the inventory around if the borrower doesn’t return to collect the collateral.
Stated differently, FirstCash offers an excellent hedge if you have some doubts about the overall circumstances. I am bullish on FCFS stock as a prudent idea for balancing one’s portfolio.
FCFS Stock Should Benefit from a Rising Addressable Market
A few months ago, I covered the bullish case for FirstCash rival EZCorp (NASDAQ:EZPW). At the time, I centered my argument on the possibility that EZCorp enjoys a burgeoning addressable market. As similar businesses, the same concept applies to FCFS stock.
While pawn shops have generated attention thanks to popular reality television programs, at the core, these entities provide credit. Sure, life in the modern world is seemingly all about fintech apps and whatnot. However, quite a few Americans have trouble accessing traditional banking services. Generally, these folks have little option when seeking credit other than turning to pawning.
I mentioned that according to the Federal Deposit Insurance Corporation (FDIC), an estimated 4.5% of U.S. households (about 5.9 million people) were unbanked in 2021. On paper, that opens the door for a huge canvas that FirstCash can address. Thus, the narrative for FCFS stock appears positive. However, that’s not the only bullish catalyst.
“Last year, Americans’ collective credit card debt soared past the $1 trillion mark, a dubious milestone. What’s worse, delinquencies also started to rise in 2023. Sure enough, this condition has not improved this year,” I wrote.
By logical deduction, as Americans’ credit ratings decline due to delinquencies, those on the margins may find themselves being disqualified from accessing traditional financial services. It’s a harsh reality, but this dynamic could boost the addressable market for pawn shop operators. In turn, FCFS stock may enjoy some residual benefits.
Of course, it’s not exactly proper form to bet on pawn shops in anticipation of lean times for down-on-their-luck workers. However, with a majority of workers stating that their wages haven’t kept pace with rising consumer prices, the bullish narrative for FCFS stock almost seems like an inevitability.
To be clear, I’m not suggesting that FCFS is guaranteed to rise. Rather, those voices who have complained about their income relative to inflation have increased, not decreased.
It’s Time for a Re-Evaluation
Interestingly, IBISWorld pointed out that the U.S. pawn shop industry has seen its sales erode at an annualized rate of 0.3% over the past five years. This analysis was published in June of 2023. While the pawn sector was declining prior to the pandemic, the market appears to have reversed.
Now, according to Coherent Market Insights, the U.S. pawn shop market – which printed a valuation of $2.43 billion in 2020 – may be worth $4.12 billion by 2028. If so, that would represent a compound annual growth rate (CAGR) of 6.8%. That’s significant because of analysts’ projections.
For Fiscal 2024, Wall Street experts anticipate earnings per share of $6.82, a lift of 12.5% from the prior year’s tally of $6.06. On the top line, they’re expecting revenue of $3.44 billion, up 9.3% from 2023’s haul of $3.15 billion. Right there, you can see that FirstCash is beating the projected growth of the domestic industry.
What’s more, the low end of the sales estimate spectrum calls for $3.39 billion. Even so, we’re still talking about a growth rate of 7.62%, again higher than the projected growth of the sector.
Looking out to Fiscal 2025, EPS is forecast to fly to $8.05 on revenue of $3.7 billion. That’s enormous profitability, and yet again, the growth rate is above what the sector might deliver.
Most significantly, there’s really nothing to suggest that FirstCash won’t deliver the goods as expected. Between the second quarter of 2023 to Q1 2024, the company’s average EPS landed at $1.59. Notably, FirstCash beat every quarter’s consensus target for earnings, with an average positive surprise of 10.5%.
Unless you have compelling evidence that suggests otherwise, FCFS stock legitimately appears to be highly attractive, and analysts agree.
Is FCFS Stock a Buy, According to Analysts?
Turning to Wall Street, FCFS stock has a Strong Buy consensus rating based on three Buys, one Hold, and zero Sell ratings. The average FCFS stock price target is $145.00, implying 30.6% upside potential.
The Takeaway: FCFS Stock Could Rise on a Shaky Economy
While broader circumstances appear favorable due in part to the booming equities market, the reality for millions of Americans tells a different tale. This terrible circumstance might benefit pawn shop operator FirstCash because the troubles may boost the company’s total addressable market. Further, the industry – which was in decline – appears to be making a comeback. Additionally, FirstCash’s robust financials and projected business expansion will likely grow faster than its core market, making FCFS stock an enticing bullish idea.
