FirstCash Holdings (FCFS): Evaluating Valuation as Credit Quality Concerns and Growth Slowdown Weigh on Sentiment

Recent discussions reveal that FirstCash Holdings (FCFS) is confronting notable credit quality challenges and slower revenue growth. These issues come in the context of ongoing market uncertainty, which is driven by unpredictable interest rates and persistently high inflation.

See our latest analysis for FirstCash Holdings.

After a stellar run over the past year, FirstCash Holdings’ share price recently cooled off, slipping 2.1% in the past week after a 50% year-to-date surge. With a five-year total shareholder return of 218%, the stock’s long-term momentum is impressive. However, current market jitters around credit quality and growth suggest the mood is shifting to a more cautious tone.

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Given the mix of long-term gains and new obstacles, the real question is whether FirstCash is trading at a bargain today or if the market has already adjusted the price for what's ahead. Could this be a genuine buying opportunity, or is future growth already priced in?

Price-to-Earnings of 23.4x: Is it justified?

At its last close of $154.13, FirstCash Holdings trades at a price-to-earnings (P/E) ratio of 23.4x, suggesting a premium compared to its direct peers.

The P/E ratio is a widely used measure comparing a company’s current share price to its per-share earnings. For a diversified financial such as FirstCash, it assesses how much investors are willing to pay today for a dollar of current earnings. A higher P/E signals optimism about future profit growth but can also reflect overenthusiasm or premium expectations.

Currently, FirstCash’s P/E ratio is below that of its peer group average (46.8x), implying relative value within its immediate competitive set. However, it is sharply higher than both the estimated fair P/E of 16.2x and the broader US Consumer Finance industry average of 10.3x. This creates a tension between strong recent growth and whether the market is paying too much for future prospects. If the market begins to reprice towards the fair ratio, FirstCash’s valuation could face pressure.

Explore the SWS fair ratio for FirstCash Holdings

Result: Price-to-Earnings of 23.4x (OVERVALUED)

However, slowing revenue growth and ongoing credit quality concerns could prompt investors to reassess FirstCash Holdings’ premium valuation in the near term.

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

Another View: Our DCF Model Tells a Different Story

Looking beyond price-to-earnings, the SWS DCF model estimates FirstCash Holdings’ fair value at $71.5, which is well below its current price of $154.13. This suggests the stock could be significantly overvalued if cash flows do not accelerate. But do current earnings justify this premium, or is caution warranted?

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 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own FirstCash Holdings Narrative

If you see things differently, or want to dig into the details on your own terms, you can shape your own perspective in minutes. Do it your way.

A great starting point for your FirstCash Holdings research is our analysis highlighting 2 key rewards and 2 important warning signs that could impact your investment decision.

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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.

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