Let’s get right into it: pawn shop operator EZCorp (NASDAQ:EZPW) may be a contrarian economic indicator. When circumstances become challenging, more people are likely to turn to this alternative form of credit and financing. Sure enough, EZPW stock is a conspicuous winner this year. Based on some less-than-encouraging details in the economy, this hand could continue winning. Therefore, I am bullish on EZCorp.
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EZPW Stock Is Enticing When You Read Between the Lines
At first glance, EZPW stock seems destined to charge a steep opportunity cost. What’s the top story in the equities space? Artificial intelligence. And what does that entail? Growth, as in rising risk-on sentiment. On the other hand, a pawn shop operator is more of a defensive idea. When people have no credit or bad credit, this platform provides financing services.
Such a narrative doesn’t align with the headline print. For example, the latest jobs report came in hotter than expected. Companies are still hiring, and therefore, people are still spending. Further, the equities market continues to climb a wall of worries. And that’s not even mentioning the meteoric rise of cryptocurrencies.
If people are betting on unregulated, decentralized digital assets that pay no dividends and hire no workers, that seems like a solid sign as any that the economy is firing on all cylinders. In that case, EZPW stock seems irrelevant.
However, read between the lines, and you may find certain questionable details. For example, while many companies are hiring, many others are also firing, including some big-name enterprises. The pink slips are especially noticeable in the technology space. That’s problematic because this sector provides high-paying, career-based opportunities.
Another problematic factor is the sustained pain that millions of American households have endured since the COVID-19 crisis. Yes, certain high-level data points, such as inflation, have generally moved in the right direction recently. However, that doesn’t dismiss the ugliness that people have had to endure. At a certain juncture, people reach their financial breaking point.
Notably, even prominent news items such as the EV sector price war reflect the contradiction between strong economic numbers and rising concerns on Main Street. No, it’s not a time to enter into a doom-and-gloom conspiracy mode. Rather, the argument is this: EZPW stock is (unfortunately) more relevant than you might think.
EZCorp Should Benefit from a Rising Addressable Market
If you want to know the main potential catalyst for EZPW stock, it can be summed up in one sentence: EZCorp should benefit from a rising addressable market.
First, let’s talk about what that market is. As stated earlier, pawn shops provide credit. Yes, the business model has attracted reality television programs, but the crux of why pawn shops exist is to provide short-term loans, especially for people who have difficulty accessing traditional banking services. In other words, EZCorp and its ilk serve the unbanked community.
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. That’s a sizable population group that will likely undergird EZPW stock if economic conditions worsen from here. However, that’s probably just the beginning.
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.
In other words, Americans’ credit ratings will obviously suffer from the delinquencies. Further, the longer these delinquencies last, the greater the damage to one’s credit. Too much damage may mean that impacted individuals may no longer find favorable terms with traditional financial institutions. They may have to turn to pawn shops, which would, on paper, benefit EZPW stock.
Also, the rising delinquencies – along with the mass layoffs that investors have seen since 2022 – suggest that many households are already on the brink. It’s not something to be celebrated, of course. However, the reality can’t be denied: EZPW stock appears incredibly relevant, speaking bluntly.
A Solid Valuation for the Forward Thinker
Moreover, the valuation for EZPW stock isn’t all that great. Currently, the security trades at a trailing-year earnings multiple of 13.2x. That’s alright, but it’s noticeably higher than the credit services industry, which sits at 11.7x.
At first glance, EZPW stock doesn’t seem like a good deal. However, the credit services industry mostly includes the traditional players – the very players that should see their addressable market diminish. With rising delinquencies, people will be less qualified to utilize their services.
On the other hand, as I explained, EZCorp should see an expanded addressable market. It’s a gamble, but if you’re willing to think ahead, EZPW stock actually seems discounted.
Is EZPW Stock a Buy, According to Analysts?
Turning to Wall Street, EZPW stock has a Moderate Buy rating based on just one Buy rating assigned in the past three months. EZPW stock’s price target is $17.00, implying 60.5% upside potential.
The Takeaway: Bad News Is Good News for EZPW Stock
Taking an initial glance at the economy, circumstances seem quite bullish. Companies are hiring, people are working, and traders are speculating. However, a deeper look into the details suggests that not everything is going to plan. With rising delinquencies cynically poised to increase EZCorp’s total addressable market, now may be a time to consider EZPW stock.
