Emerging Opportunities in the Alternative Credit Space (EZPW, ATLC, FCFS)
One of the hottest growth ideas for the second half of 2018 may be the alternative credit space, according to experts and analysts. The big banks are only getting part of the market, and don’t have the protocols or regulatory flexibility to get the other pieces of the pie.
With the economy continuing to perform, default rates are falling and profit margins are skyrocketing for those servicing the underserved segments. That has stocks in the space heating up, but there are still some powerful opportunities.
We are going to look at a few such names today, including EZCORP Inc (NASDAQ: EZPW), Atlanticus Holdings Corp (NASDAQ: ATLC), and FirstCash Inc (NYSE: FCFS).
EZCORP Inc (NASDAQ: EZPW) provides pawn loans. The company operates through three segments: U.S. Pawn, Mexico Pawn, and Other International. It offers pawn loans, which are non-recourse loans collateralized by tangible personal property, such as jewelry, consumer electronics, power tools, sporting goods, and musical instruments; and sells merchandise, including collateral forfeited from pawn lending operations and used merchandise purchased from customers.
The company also offers payday loan services through its financial services stores.
As of June 11, 2018, it operated a network of 921 pawn stores under the EZPAWN or Value Pawn & Jewelry, Empeño Fácil, GuatePrenda, and MaxiEfectivo names in the United States and Latin America. The company also operates a network of 27 financial services stores under the CASHMAX name in Canada. EZCORP, Inc. was founded in 1989 and is headquartered in Austin, Texas.
Shares of EZPW have been drifting lower for most of 2018. But this action is a corrective move in the context of a larger upward trend in place for most of the past 30 months, during which time, the stock has powered over 500% higher. Technically, the chart just presented a technical configuration known as a “death cross”, which features a crossing of the 50-day SMA below the 200-day SMA on the daily chart.
After such a big run, this may be a stock that needs more time to consolidate. But the next stock, below, may just be warming up for its own run.
Atlanticus Holdings Corp (NASDAQ: ATLC) bills itself as a company that provides credit and related financial services and products to financially underserved consumer credit market in the United States. It operates in two segments, Credit and Other Investments, and Auto Finance.
The balance sheet is in good shape, with more cash than debt. And revenues are growing strong. To wit: ATLC is pulling in trailing 12-month revenues of $157M with major top-line growth (y/y quarterly revenues growing at 51.2%).
In addition, the compan recently announced a jump to net income profitability as well as new access to a massive credit facility capable of powering nearly $200 million in expanded investment.
In terms of segmentation, the company’s Credit and Other Investments segment originates a range of consumer loan products, such as retail credit, personal loans, and credit cards through various channels, including retail point-of-sale, direct mail solicitation, Internet-based marketing, and partnerships with third parties; and offers point-of-sale financing by partnering with retailers and service providers to provide credit to their customers for the purchase of various goods and services.
This segment also invests in and services portfolios of credit card receivables. In addition, this segment offers loan servicing, such as risk management and customer service outsourcing for third parties; and engages in testing and investment activities in consumer finance technology platforms.
The Auto Finance segment purchases and/or services loans secured by automobiles from or for a pre-qualified network of independent automotive dealers and automotive finance companies in the buy-here, pay-here, and used car business. This segment also provides floor plan financing and installment lending products.
Technically, the stock looks cheap on a price-per-share basis. And the float is tiny, with just 4.7 million shares rattling around on the public market. Volume has been increasing, leading to the potential for a squeeze to the upside now that the stock has held key support at the $1.60 level for the second time this year.
FirstCash Inc (NYSE: FCFS) operates retail-based pawn and consumer finance stores in the United States and Mexico. Its pawn stores lend money on the collateral of pledged personal property, including consumer electronics, jewelry, power tools, household appliances, sporting goods, and musical instruments; and retails previously owned merchandise acquired through pawn forfeitures, as well as through purchases from the general public.
The company also engages in melting scrap jewelry, as well as sells the gold, silver, and diamonds in commodity markets. Its consumer finance stores provide small unsecured consumer loans, credit services, and check cashing services. As of December 31, 2017, the company owned and operated 2,039 pawn stores and 72 consumer loan stores in 26 states of the United States and 32 states of Mexico, as well as Guatemala and El Salvador.
The company was formerly known as First Cash Financial Services, Inc. and changed its name to FirstCash, Inc. in September 2016. FirstCash, Inc. was founded in 1988 and is headquartered in Fort Worth, Texas.
Shares of FCFS have been ripping higher over the past two years, rising by over 100% in that time. However, the stock was chopped down in July and is now walking along support at its 200-day simple moving average around the $80/share level. While pullbacks are a tasty idea, the stock is still up a ton over the past 24 months, and the 50-day SMA is now downward sloped for the first time in a long time.