TSC Ratings' Updates: Cash America

We've downgraded pawnshop owner and operator Cash America(CSH Quote) from buy to hold. Strengths include its revenue growth, largely solid financial position with reasonable debt levels by most measures and notable return on equity. However, as a counter to these strengths, we also find weaknesses including a decline in the stock price during the past year, weak operating cash flow and poor profit margins.

Revenue increased by 8.9% since the same quarter a year ago, outpacing the industry average or 0.8%. The debt-to-equity ratio is somewhat low, currently at 0.63, and is less than that of the industry average, implying a relatively successful effort in the management of debt levels. Cash America also has a quick ratio of 1.99, which demonstrates the ability of the company to cover short-term liquidity needs.

EPS declined by 7.3% in the most recent quarter compared with the same quarter a year ago. This company has reported somewhat volatile earnings recently, but we feel it is poised for EPS growth in the coming year. During the past fiscal year, it increased its bottom line by earning $2.62 vs. $2.00 in the prior year. This year, the market expects an improvement in earnings to $3.08. Net operating cash flow has decreased to $63.52 million, or 10.35% when compared with the same quarter last year, but Cash America is still fairing well by exceeding its industry average cash flow growth rate of -46.69%. Shares are down 28.41% over the past year, probably due to the decline in the broader market, which was even more sharp, and the company's week EPS results. Despite the heavy decline in its share price, this stock is still more expensive (when compared to its current earnings) than most other companies in its industry.