Another solid quarter from the real pawn star, First Cash Financial Services (Nasdaq: FCFS).
Revenue rose 19% from last year and profitability improved - leading to income from continuing ops rising 22% and EPS climbing 20%. Management also raised guidance again for the remainder of the year (management guidance tends to be slightly conservative, historically one the order of 0.01-0.03 per share per quarter).
Same-store revenue was up 12% this quarter, with 14% growth in Mexico and 10% growth in the U.S.. Pawn receivables (which you can think of as "inventory" for future revenue) rose 16%, with a 26% jump in Mexico. Suffice it to say, then, that the near-term growth prospects for FCFS are looking quite solid.
While FCFS generates the vast majority of its business from traditional pawn shop operations, they still do have a limited payday lending / short-term loan business. Revenue from this rose 14%, and represented about 15% of the total revenue base. The company also said that credit losses from this business were starting to decline, though the absolute levels are still pretty high.
Mexico provided 52% of the revenue this quarter and that is really one of the key themes of this whole story. US pawn operations are still growing and are certainly still profitable, but the future (at least for FCFS) is south of the border. The company still has plenty of opportunities for expanding its store count in Mexico, but I would still like to see the company start considering other markets as well - say, perhaps, Brazil.
FCFS's financial reports are in some respects bank-like and that can make cash flow forecasting a bit more volatile. Nevertheless, I think fair value for these shares is about $30. I am basing that on 10% forward revenue growth - a figure that seems conservative given how well the company is doing.
Disclosure - I own shares of First Cash Financial
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