FirstCash Holdings (FCFS) Faces A 44% Above Fair Value View As Credit Flexibility Improves

Why FirstCash Holdings Stock Is In Focus After Its New Credit Agreement

FirstCash Holdings (FCFS) has amended its long term unsecured bank credit agreement, expanding the revolving facility to US$1.055b, extending its maturity to August 2031, and adjusting other key debt terms.

FirstCash Holdings’ share price has pulled back over the past week, with a 7 day share price return of down 9.27% and a 1 day move of down 2.14%. However, momentum over longer periods remains positive, with a year to date share price return of 36.82% and a 1 year total shareholder return of 46.94%, signalling that recent weakness follows a strong multi year run.

Compare how FirstCash Holdings’ renewed credit firepower stacks up against other financial stocks by scanning our hand picked list of solid balance sheet and fundamentals (52 results) now gaining attention for their funding strength.

After that sharp pullback and a much larger credit facility now in place, the real tension for FirstCash Holdings investors is simple. Does the current valuation still leave enough upside to justify the risks being taken?

Preferred P/E of 24x for FirstCash Holdings: Is It Justified?

FirstCash Holdings currently trades on a P/E of 24x, which is one signal that the stock is pricing in strong expectations at the last close of $214.51.

The P/E multiple compares the company’s share price to its earnings per share. For a business like FirstCash Holdings, with a long operating history and established profitability, P/E gives a quick read on how much investors are willing to pay for each dollar of earnings today.

Analysts are forecasting FirstCash Holdings’ earnings to grow at 17.6% per year, and the company’s reported earnings growth over the past year was 33%. That kind of profit expansion helps explain why the market may be comfortable with a higher P/E. However, the company’s 16.7% Return on Equity is described as low and its debt level is high, which can both limit how far investors are prepared to push valuation.

Where the comparison really becomes clear is against benchmarks. FirstCash Holdings’ 24x P/E is described as expensive versus the US Consumer Finance industry average of 9.6x and also above the peer average of 18.6x. It is also above an estimated fair P/E of 16.7x, which is a level the market could potentially move towards if sentiment or growth expectations cool.

Explore the SWS fair ratio for FirstCash Holdings

Result: Price-to-Earnings of 24x (OVERVALUED)

However, investors in FirstCash Holdings still face risks from its high debt load and any setback in earnings growth, which could challenge support for a 24x P/E.

Find out about the key risks to this FirstCash Holdings narrative.

Another View on FirstCash Holdings Using Our DCF Model

The SWS DCF model takes a different angle on FirstCash Holdings. On this view, the stock at $214.51 is trading well above an estimated future cash flow value of $87.15. That points to a very different picture of value. Which signal should matter more for you right now?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out FirstCash Holdings for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 45 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

With both caution and optimism running through this FirstCash Holdings story, it makes sense to move fast and test the numbers yourself so you are not relying only on headline takes. To see both sides of the current debate in one place, review the 2 key rewards and 2 important warning signs

Looking For More Investment Ideas Beyond FirstCash Holdings?

If you stop at FirstCash Holdings, you could miss other stocks that better match your goals. Use the Simply Wall Street Screener to widen your opportunity set.

• Hunt for quality at a discount by scanning our 45 high quality undervalued stocks that combine stronger fundamentals with prices the market may be underappreciating.
• Target cash income today by reviewing a focused list of 12 dividend fortresses that offer higher yields with supporting fundamentals.
• Prioritise sleep at night potential with a curated 74 resilient stocks with low risk scores built around companies showing more resilient risk scores.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com