FirstCash's High Valuation Bites The Stock As Operations Show A Few Hiccups

I’ve owned FirstCash (FCFS) for a long time (over a decade now), and over that time I’ve learned that this is a business that runs in streaks – operations will hum along nicely for multiple quarters, beating estimates and supporting a strong stock, and then the company will run into a few hiccups that hit the numbers and the stock before things get back on track. While second quarter results weren’t bad, they weren’t really any better than expected and there are a few concerns coming out of the quarter that investors will need to watch.

Given the high valuation on FirstCash shares and the apparent end (at least short-term) of beat-and-raise quarters, I’m not surprised the shares sold off after earnings. I still wouldn’t call the valuation a particular bargain, but I’m content to hold on the basis of what I expect will be high single-digit returns (based upon discounted cash flow) and the potential for expansion into Colombia and Peru to accelerate growth in a few years’ time.

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FirstCash's High Valuation Bites The Stock As Operations Show A Few Hiccups