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First Cash Bash

If you can forgive the shameless plug way up here in the first line of this article, I must say that one of the best things about the Hidden Gems service is the access to crack stock analysis from the brains of other newsletter subscribers. It was an HG community member who first pointed me toward an interesting little company called First Cash Financial Services (Nasdaq: FCFS  ) .

The company is engaged in one of those businesses that many of us might find unseemly: pawn shops, payday loans, and paycheck cashing. Search for stories and banter about the firm, and you'll find little. Other investors tend to shy away from such outfits. And in their reluctance, you might find opportunity.

I look at it this way: First Cash takes care of neighborhoods and customers who aren't served by the likes of Citigroup (NYSE: C  ) or Bank of America (NYSE: BAC  ) . Hey, I've lived in those neighborhoods, and believe me, there's plenty of market for what First Cash offers.

Today's nice-looking quarterly numbers provide a revealing portrait of a small cap that's solidly profitable and growing. Revenues climbed 21% to $41 million. This has been a habit recently, as this table shows.

Earnings per share 2004 YOY growth 2003 YOY growth 2002
First quarter $0.30 25% $0.24 20% $0.20
Second quarter $0.25 25% $0.20 33% $0.15
Third quarter NA $0.25 39% $0.18
Fourth quarter NA $0.29 26% $0.23
Total (Estimated) $1.22 24% $0.98 29% $0.76

The growth rate doesn't seem to be enough to attract the growth/momentum crowd, yet it's far ahead of competitors such as ACE Cash Express (Nasdaq: AACE  ) , Cash America International (NYSE: PWN  ) , and the shareholder horror story that is EZCorp (Nasdaq: EZPW  ) . That's why First Cash carries a much higher multiple than its peers. Yet there may be plenty of room left for the stock to run.

The company has been producing abundant free cash flow for years and funds its expansion without taking on debt, which is why the balance sheet shows $20 million in cash and no long-term debt. With the share buyback announced today possibly taking 10% of the outstanding shares off the market, it looks like the best is yet to come.

To get in on theHidden Gemsexperience, try it out risk-free.

Fool contributor Seth Jayson has no position in any firm mentioned. View his Fool profile here.

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