Pawn shops stocks are set to continue their rally as gold hits record highs, according to Canaccord Genuity. EZCorp and FirstCash , some of the largest pawn shop operators in the U.S., have been on a tear of late. The former popped almost 60% over the past six months, while the latter has rallied around 35%. Those moves come as gold and silver prices scale to record highs. Gold topped $5,500 per ounce for the first time Thursday. Silver, meanwhile, hit an all-time high of $121.79. Historically, investors have sought precious metal stocks during economic uncertainty and geopolitical conflict. As stocks become unstable, precious metals are usually a safe bet for investors. However, the leave stocks such as EZCorp and FirstCash ripe for further gains. “When gold prices go up, the company should theoretically benefit, as gold makes up most of its collateral,” analyst Brian McNamara wrote. EZPW FCFS 6M mountain EZPW and FCFS 6-mo chart Rising gold and silver prices mean that more people are taking their pawning their metal jewelry. In fact, jewelry remains the most frequently sold and pawned categories, according to a Canaccord survey of several EZCorp and FirstCash locations. McNamara reiterated his buy rating on EZCorp and kept his price target at $28. That implies upside of 33% from Wednesday’s close. “[EZCorp has] emphasized that it will continue taking advantage of rising gold prices, which drive better scrapping margins. Day-to-day, customers have been bringing in less grams than they used to for the same loan, as they have extra collateral sitting in their houses,” McNamara noted. FirstCash is also “very cushioned on gold” and “typically sells its inventories out every quarter and does not have much scrap inventories,” said the analyst, who hiked his price target on shares to $210 from $205. That signals a gain of 24%. To be sure, there are inherent risks with pawn shops that could hurt the stocks. These include unfavorable regulation and the potential for a big decline in gold and silver prices. Both EZCorp and FirstCash are heavily regulated at the state level and are also subject to federal firearm rules. Additionally, pawn shops hold large amounts of gold, and many loans are collateralized by gold jewelry. Any changes to either front could reintroduce volatility. Still, McNamara remains bullish. “Overall, we found that business remains steady, with the core pawn customer remaining pressured and higher-income individuals seeking value,” he said.
