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Is EZCORP's Stock a Bargain by the Numbers?

Anand Chokkavelu, CFA
January 6, 2012

Numbers can lie -- but they're the best first step in determining whether a stock is a buy. In this series, we use some carefully chosen metrics to size up a stock's true value based on the following clues:

  • The current price multiples.
  • The consistency of past earnings and cash flow.
  • How much growth we can expect.

Let's see what those numbers can tell us about how expensive or cheap EZCORP (Nasdaq: EZPW  ) might be.

We'll look at the numbers against some competitors and industry mates: Advance America, Cash Advance Centers (NYSE: AEA  ) , Cash America International (NYSE: CSH  ) , and First Cash Financial Services (Nasdaq: FCFS  ) .

The current price multiples
First, we'll look at most investors' favorite metric: the P/E ratio. It divides the company's share price by its earnings per share -- the lower, the better.

Then, we'll take things up a notch with a more advanced metric: enterprise value to unlevered free cash flow. This divides the company's enterprise value (basically, its market cap plus its debt, minus its cash) by its unlevered free cash flow (its free cash flow, adding back the interest payments on its debt). Like the P/E, the lower this number is, the better.

Analysts argue about which is more important -- earnings or cash flow. Who cares? A good buy ideally has low multiples on both.

EZCORP has a P/E ratio of 11.2 and an EV/FCF ratio of 11.9 over the trailing 12 months. If we stretch and compare current valuations to the five-year averages for earnings and free cash flow, EZCORP has a P/E ratio of 18.1 and a five-year EV/FCF ratio of 18.9.

A positive one-year ratio under 10 for both metrics is ideal (at least in my opinion). For a five-year metric, under 20 is ideal.

EZCORP has a mixed performance in hitting the ideal targets, but let's see it in context: 


1-Year P/E

1-Year EV/FCF

5-Year P/E

5-Year EV/FCF

EZCORP 11.2 11.9 18.1 18.9
Advance America, Cash Advance Centers 10.1 3.8 11.8 3.6
Cash America International 10.5 4.9 14.1 7.3
First Cash Financial Services 13.9 19.3 28.1 25.4

Source: S&P Capital IQ.

Numerically, we've seen how EZCORP's valuation rates on both an absolute and relative basis. Next, let's examine...

The consistency of past earnings and cash flow
An ideal company will be consistently strong in its earnings and cash flow generation.

In the past five years, EZCORP's net income margin has ranged from 10.2% to 14.1%. In that same time frame, unlevered free cash flow margin has ranged from 9.7% to 13.6%.

How do those figures compare with those of the company's peers? See for yourself:

Source: S&P Capital IQ; margin ranges are combined.

Additionally, over the last five years, EZCORP has tallied up five years of positive earnings and five years of positive free cash flow.

Next, let's