First Cash Financial Goes South

Despite the credit crunch operating here in the United States, there's no similar worry south of the border, where pawn shop operator and payday lender First Cash Financial (Nasdaq: FCFS  )  experienced 40% growth in revenues from expanded operations.

Mexico has been identified as an area of growth opportunities, and First Cash is looking to broaden its new concept: financial supermarkets for the unbanked. Its CashYa! stores, which translates into CashNow!, will grow beyond the 19 stores opened in the past year. They'll offer typical payday loans as well as bill payment and currency exchange.

Diversity of concepts has become standard procedure for payday lenders, as their business has come under attack from politicians and regulators. Buy here/pay here used car dealerships are growing in popularity, for instance. First Cash operates over a dozen Auto Master dealerships, while Motley Fool Stock Advisor recommendation CompuCredit (Nasdaq: CCRT  ) has purchased its own fleet to round out its credit card ventures.

While the businesses are operating soundly, the stocks of these companies are not. As the housing market continued to implode this summer and fears of a credit crisis mounted, First Cash Financial's stock also took a hit, tumbling almost 20% in two months. Most of its competitors took similar or worse hits -- Advance America (NYSE: AEA  ) is off by more than 40% -- and while First Cash has recovered, it remains very expensive compared with the rest of the industry.

Looking at forward earnings estimates, First Cash trades as high as a 36% premium to CompuCredit, Cash America (NYSE: CSH  ) , and EZCORP (Nasdaq: EZPW  ) , and has done so for a while. That may be because it has less exposure to some of the troubles others have. For example, while new regulations in Oregon crimped profits by a penny a share for First Cash, Advance America will be closing 45 stores there (as well as more than 100 payday loan centers in Pennsylvania), because of tough new laws enacted in the state.

The grandstanding by local politicians -- which has led to payday loans being banned in Georgia, caps on interest rates charged in North Carolina, and harmful legislation in dozens of states -- does not exist in Mexico. This explains why many such lenders are increasingly going international, opening branches in Canada and the U.K.

The fact that the services remain popular, even though the industry is allegedly preying on its customers, highlights the need for short-term loans -- a need that traditional financial institutions have failed to fill.

As good as First Cash Financial's results have been, those results are already reflected in its share price. Investors should probably wait for the next legislative shoe to fall or the next credit brouhaha to erupt, thus making an entry point more attractive.

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