High-unemployment continues to plague the U.S. economy.
According to the Department of Labor, the official unemployment
rate recently increased to 9.1%. It's tough to imagine the illusion
of a recovery extending much longer when millions of people are
And it doesn't take a market expert to absorb all of the
aforementioned economic data and come to the conclusion that the
U.S. economy is in trouble.
So the question as a small cap investor or any investor for that
matter is - how can we profit from high-unemployment and a
It stands to reason that pawn shops would do well during economic
I have found a small burgeoning company that performed well during
the last recession and continues to perform well as high
First Cash Financial Services (
has a stronghold on the pawn shop and cash advance businesses.
With a market cap of $1.2 billion and 627 stores scattered
throughout the U.S. and Mexico, First Cash Financial Services offer
the traditional pawn shop services plus cash advance stores.
Typically, an individual goes to a pawn shop when they need quick
cash. As you can imagine, during tough economic times pawn shops
benefit from people in need of cash to pay bills and feed their
And even though pawn shops are known as being the middle man
between sellers and buyers this is not where most of their money is
made. They make large portion of their money through the lucrative
business of payday lending.
Payday lenders make small, short-term loans against the borrower's
paycheck. This allows the borrower to have cash quicker than going
to a traditional bank, depositing the funds and waiting for the
cash to become available. And, of course, the pawn shop charges a
hefty fee for the benefit of the cash advance. First Cash charges
up to 240 percent for such services.
***Fundamentally, the company is impressive...
First of all, the company has actually upped its EPS in each year
of the past decade. A feat not accomplished by many publicly traded
Moreover, First Cash recently reported strong profit margins at
13.1 percent and strong recent growth. It recently upped its EPS
51.5 percent and sales 27.7 percent in the last quarter.
I also like the fact that the company has a very small debt to
equity ratio at 0.4 percent. One of the only blemishes on the stock
is that at the moment it is not as cheap as I would typically
prefer. It currently sells for a PEG of 0.91 which is not overly
expensive for a fast growing, fundamentally sound stock.
There is no arguing there is value in First Cash Financial. The
question is whether the demand for their services will continue if
the economy turns around. Again, one way to gauge the potential for
the stock is to watch the unemployment rate. With 9.1% unemployment
in May, a large number of people remain out of work and will likely
seek out the assistance of the pawn shops during tough times.