Waiting on Gold

I wish to purchase EZCORP (EZPW) but the company is hurting on the profit front due to the price of scrap gold, which has been in decline (view a company slideshow from January here). Company store sales are doing just fine, but the negative impact of jewelry scrap prices is bringing in negative profit growth.

One Year Chart

The red at the bottom of the one-year chart is a result of gold scap prices being in decline. As you can see from the Estimates for the next two quarters, profit growth is not expected to return for at least six months. Management expects the company to return to double-digit growth later this year.

Also, EZPW seems cheap at 8 times earnings, but pawn shops often get P/Es of 8 to 10. Annual profit estimates just declined after EZPW reported earnings last quarter.

Fair Value

I feel when momentum turns this stock could be worth 10 times earnings. Perhaps $30 is achievable in 2014.

Sharek’s Take

Management expects profit growth to return in the fourth quarter of 2013 and continue into 2014. Right now investors are not getting into EZPW, but this stock is good for long-term investors looking to make an early bet. Upside for the long-term is solid, but there’s no rush to get in at this time.

EZPW is at the top of my radar and I might buy the stock any day, I like the fact this stock could go from $19 or so to $30 within a year or two. Look at the ten-year chart (link below), this has proven to be a solid investment during the past decade.