FirstCash Seeing A Strong Core Pawn Recovery, But Point-Of-Sale Is Lagging

It took some time, but FirstCash (NASDAQ:FCFS) is definitely seeing a recovery in its core pawn operations, as high inflation is pinching disposable income for its core customer base. At the same time, though, retail partners for the company's lease-to-own operations (the American First Finance acquisition) are seeing lower foot traffic and gross origination volumes haven't impressed me all that much so far.

At this point, I remain concerned that the AFF deal will drag on results in the near future, though I do still see the logic of entering the point-of-sale financing/lease-to-own business with an asset-light model. I also still expect some lag in the performance of the Mexican pawn stores relative to the U.S. operations, and I continue to believe that expanding the Latin American store footprint would be a good use of capital.

Between a better outlook for the core pawn operations and a weaker outlook for the POS/LTO operations, my model and valuation don't change all that much. I continue to believe that FirstCash shares are undervalued and worth considering, but I also acknowledge that the AFF acquisition has added execution/capital allocation risk to the story, and some investors may prefer other plays on themes like inflation and lower-income consumers.

 

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FirstCash Seeing A Strong Core Pawn Recovery, But Point-Of-Sale Is Lagging