Is FirstCash (FCFS) A Smart Long-Term Buy?

Heartland Advisors, an investment management firm, published its “Heartland Mid Cap Value Fund” second-quarter 2021 investor letter – a copy of which can be downloaded here. In the letter, the fund mentioned that its stock selection was strong in several sectors, and the portfolio finished the first half of the year ahead of its Russell Midcap® Value benchmark. You can take a look at the fund’s top 5 holdings to have an idea about their top bets for 2021.

In the Q2 2021 investor letter of Heartland Advisors, the fund mentioned FirstCash, Inc. (NASDAQ: FCFS) and discussed its stance on the firm. FirstCash, Inc. is a Fort Worth, Texas-based pawn store operator with a $3.3 billion market capitalization. FCFS delivered an 18.66% return since the beginning of the year, while its 12-month returns are up by 36.09%. The stock closed at $82.97 per share on August 16, 2021.

Here is what Heartland Advisors has to say about FirstCash, Inc. in its Q2 2021 investor letter:

Cash is king. Financials in the broad market continued to benefit from anticipation of rising rates and better than expected loan performance. The portfolio’s holdings in the sector outperformed on a relative basis and the group included FirstCash Inc, (FCFS), a top contributor for the period.

Shares of FirstCash, which operates pawn stores in the U.S. and Latin America, jumped as the impact of COVID-19 stimulus checks began to fade and the demand outlook for pawn loans were expected to improve. We remain constructive on the business due to its high margins and view it as uniquely positioned to thrive should the financial resiliency of consumers soften.”

Photo by Karolina Grabowska from Pexels

Based on our calculations, FirstCash, Inc. (NASDAQ: FCFS) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. FCFS was in 13 hedge fund portfolios at the end of the first quarter of 2021, compared to 17 funds in the fourth quarter of 2020. FirstCash, Inc. (NASDAQ: FCFS) delivered a 7.12% return in the past 3 months.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

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Disclosure: None. This article is originally published at Insider Monkey.