Past cycles have shown FirstCash (FCFS) to be a relatively solid countercyclical performer, but every downturn has its own unique aspects, and this downturn has created some real challenges. Pawn loan demand has deteriorated more than expected, with U.S. demand impacted by higher levels of government support, and Mexico’s economy is in tough shape. With that, the shares have noticeably underperformed.
FirstCash has had significant pullbacks in the past, though, and I believe this is still a long-term buying opportunity. The retail operations have held up relatively well, with good execution, and there is evidence of an upturn in pawn loan demand that I expect to continue/accelerate in 2021. Longer term, while new fintech alternatives will be a competitive factor, FirstCash’s core pawn lending services will still be needed by under-banked customers in both the U.S. and Latin America and I expect a double-digit annualized return from these levels.
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