Pat McKeough responds to many requests from members of his Inner Circle for specific advice on trading stocks as well as questions on investment strategy and the economy. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle.

This week we heard from an Inner Circle member who wanted to know about a stock that operates pawnshops and payday loan stores in North America. The company is expanding internationally, with Mexico its strongest area of growth. Pat looks at the company’s financial outlook and its sensitivity to gold prices. He also assesses its prospects in the face of critics calling for stiffer regulations against what they see as questionable practices in the industry.

Q: Hi Pat: I would like an opinion on EZCORP. Thank you.

A: EZCORP, Inc. (symbol EZPW on Nasdaq; www.ezcorp.com), is a Texas-based company that operates pawnshops and payday loan stores in the U.S., Canada and Mexico.

Through its pawnshops, EZCORP offers loans that borrowers must back up by offering personal property as collateral. These types of loans are commonly known as pawn loans.

The shops also sell merchandise, mainly collateral forfeited through the company’s pawn-lending operations.

As of June 30, 2013, EZCORP operated over 1,300 locations, consisting of more than 470 pawnshops in the U.S. (mainly operating as EZPAWN or Value Pawn), seven Cash Converters buy/sell stores in the U.S., 230 pawnshops in Mexico (under the Empeño Fácil or Empeñe Su Oro banners), 442 payday loans stores in the U.S. (mainly under the EZMONEY brand), 33 CASHMAX payday loan stores in Canada, 35 Cash Converters buy/sell stores in Canada and 45 payday loan stores in Mexico (operating as Crediamigo).

The company also has significant investments in Albemarle & Bond Holdings plc, one of the U.K.’s largest pawnbroking businesses, with over 180 stores. In addition, EZCORP holds an interest in Cash Converters International, which franchises and operates a worldwide network of over 700 financial-services and second-hand retail outlets.

EZCORP shuts down 100 unprofitable outlets and opens new locations in international markets

In the three months ended June 30, 2013, EZCORP’s revenue rose 4.7%, to $235.2 million from $224.6 million a year earlier. If you exclude revenue from buying gold, the company’s revenue rose 13%. EZCORP buys gold and sells it to wholesalers who then melt most of it down for resale to jewellery makers.

EZCORP benefits from rising gold prices, because they prompt people to visit its stores to sell their gold. Customers also use gold to pawn and borrow against. The company’s shops can earn high interest on those loans and keep or sell the gold if the borrower never returns.

However, periods of falling gold prices, such as the first eight months of this year, hurt the company, because the value of the metal it holds declines. Lower prices also cut traffic into its outlets.

Before one-time items, earnings per share fell to $0.29 from $0.58. Declining gold prices cut earnings by $0.18 a share. Excluding that, and a $0.02-a-share charge to close underperforming stores, EZCORP earned $0.49 a share in the latest quarter. That beat the consensus estimate of $0.41.

In all, EZCORP closed 100 unprofitable outlets in the latest quarter, partly offsetting the 172 new locations it opened in the last three quarters, including 93 outside the U.S.

The company continues to expand internationally, including in Canada, Latin America and the U.K. Mexico is a particularly strong growth area for EZCORP.

In the Inner Circle Q&A, Pat looks at the prospects for EZCORP in light of a recovering economy and the uncertain outlook for gold. He also examines the problems the company may face from regulations aimed at stopping what critics call “predatory practices” in the industry. He concludes with his clear buy-hold-sell advice on this stock.

(Note: If you are a current member of the Inner Circle, please click here to view Pat’s recommendation. Be sure to log in first.)

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Some investors prefer not to invest in companies that sell cigarettes and alcohol, or make money on gambling or payday lending. Do you have any reluctance in investing in stocks like these? If you own funds, do you check the prospectus to see whether it contains stocks whose businesses you find questionable in some way?