BOSTON (TheStreet) -- Whether you admit it publicly, you've probably seen Pawn Stars, the second-highest-rated reality show on TV. (Can you guess which show is No. 1?)
The show, which chronicles the daily doings at the Gold and Silver Pawn Shop of Las Vegas, is a guilty pleasure. Obsessed fans of the show are lining up outside the store to get a glimpse of their favorite character, whether it's Chumlee or The Old Man, with up to 4,000 people visiting every day.
The Pawn Stars guys are making it big. They're likable, funny and full of useless knowledge. And the pawn industry (namely the National Pawnbroker's Association) is supporting the show, having awarded Rick Harrison and staff "The Pawnbroker of the Year Award 2010" for "dramatically improving the image of the modern-day pawnbroker."
But can an everyday pawn broker, unsupported by a major television show, be a profitable investment? The answer is a resounding yes. A tight credit market and a bumbling economy have led to big returns for the three publicly traded U.S. pawn shops. EZCorp. Inc. (EZPW) has risen 12% this year, First Cash Financial Services (FCFS) has increased 40% and Cash America International (CSH) has soared 48%.So how does the pawn business work? A customer in need of quick cash delivers an item for pawn. The store loans the customer an amount at a value of roughly 60% of the item's estimated resale value. For the term of the loan, the customer pays a monthly fee (an average of 15% to 20%) or is forced to forfeit property. If the customer doesn't pay back the loan, the pawn shop sells the item, making back 40% in margin on a sale. Yes, it's a highly profitable business. You'll notice that all of the publicly traded pawn shops have diversified operations in the name of loan and credit services. Most of the financing in this segment is done in the form of short-term payday loans, which is riskier. TheStreet Ratings maintains a "buy" rating on all three stocks in the group. Here's a rundown of the stocks and some insights into the companies:
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