The financial services sector benefits from a growing focus on budgeting via finance apps, expanded internet access, adoption of advanced fintech solutions, rising access to financial services, and supportive government policies. In addition, resilient consumer spending, income gains, rising digitalization of financial services, and increasing credit needs further drive the industry’s promising outlook.
Amid this backdrop, investors could consider buying quality financial stocks, such as FirstCash Holdings, Inc. (FCFS), World Acceptance Corporation (WRLD), and Regional Management Corp. (RM), to secure solid gains.
The proliferation of the Internet and the expanding usage of smartphones has helped expand the accessibility to consumer financial services. Consumer financial services include digital payments, credit cards, mortgages, insurance, wealth management, current and savings accounts, and Buy Now Pay Later (BNPL),
The global consumer finance market is expected to reach $1.96 trillion by 2029, growing at a CAGR of 7.1%. Companies benefit by prioritizing market reach, partnerships, and innovation. Additionally, AI, data analytics, blockchain, and cloud technology improve services, risk management, innovation, and competitiveness, further expanding the sector.
Furthermore, the financial services market is projected to grow at a CAGR of 7.6% to reach $44.93 trillion by 2028.
Considering these conducive trends, let’s analyze the fundamental aspects of the three Consumer Financial Services stocks, starting with the third choice.
Stock #3: FirstCash Holdings, Inc. (FCFS)
FCFS and its subsidiaries operate retail pawn stores in the United States, Mexico, and the rest of Latin America. The company operates in three segments: U.S. Pawn, Latin America Pawn, and Retail POS Payment Solutions segments.
In terms of the trailing 12-month gross profit margin, FCFS' 61.55% is 2.4% higher than the industry average of 60.11%. Likewise, its trailing 12-month Return on Common Equity and Return on Total Capital of 11.91% and 7.19% are 13.3% and 5.9% higher than the industry averages of 10.51% and 6.79%, respectively.
During the first quarter that ended March 31, 2024, FCFS’ revenue increased 9.7% year-over-year to $836.37 million. Its non-GAAP net income and EPS came in at $70.19 million and $1.55, up 21.6% and 24% from the prior year’s quarter, respectively. In addition, the company’s non-GAAP EBITDA of $131.59 million indicates an increase of 20.1% year-over-year.
For the quarter ending June 30, 2024, FCFS’ EPS is expected to increase 16.4% year-over-year to $1.42. Its revenue for the same quarter is expected to increase 9.8% year-over-year to $824.42 million. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, FCFS’ stock has gained 19.5% to close the last trading session at $118.80.
FCFS’ strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Sentiment. It is ranked #5 out of 43 stocks in the B-rated Consumer Financial Services industry. To see FCFS’ Growth, Value, Momentum, Stability, and Quality ratings, click here.
Stock #2: World Acceptance Corporation (WRLD)
WRLD is a consumer finance company in the United States. The company offers short-term small installment loans, medium-term larger installment loans, related credit insurance, and ancillary products and services to individuals. It also provides automobile club memberships to its borrowers, as well as income tax return preparation and electronic filing services.
In terms of the trailing 12-month EBIT margin, WRLD’s 25.76% is 10.6% higher than the industry average of 23.30%. Its 0.53x trailing-12-month asset turnover ratio is 145.3% higher than the industry average of 0.22x. Also, the stock’s 24.56% trailing-12-month levered FCF margin is 38.5% higher than the industry average of 17.73%.
WRLD’s total revenues for the fiscal year ended March 31, 2024, amounted to $573.21 million. Its interest and fee income stood at $468.53 million. The company’s net income rose 264.3% year-over-year to $77.35 million. Additionally, its EPS came in at $13.19, up 266.4% over the prior-year quarter.
Analysts expect WRLD’s EPS and revenue for the quarter ending June 30, 2024, to increase 4.3% and 1.2% year-over-year, reaching $1.69 and $141 million, respectively. It has surpassed the Street EPS and revenue estimates in each of the trailing four quarters. Over the past six months, the stock has gained 32.6% to close the last trading session at $138.13.
It’s no surprise that WRLD has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Quality and a B for Value. Within the same industry, it is ranked #4. Beyond what we have stated above, we also have given WRLD grades for Growth, Momentum, Stability, and Sentiment. Get all the WRLD ratings here.
Stock #1: Regional Management Corp. (RM)
RM is a diversified consumer finance company that provides various installment loan products primarily to customers with limited access to consumer credit from banks, thrifts, credit card companies, and other lenders in the United States.
In terms of the trailing 12-month Return on Total Assets, RM’s 1.28% is 20.5% higher than the industry average of 1.06%. Similarly, RM’s 0.31x trailing-12-month asset turnover ratio is 46% higher than the industry average of 0.22x.
For the fiscal first quarter that ended March 31, 2024, RM’s total revenue increased 6.6% year-over-year to $144.31 million. Its net income stood at $15.21 million, or $1.56 per common share, respectively, up 75% and 73.3% year-over-year. In addition, the company’s total assets of $1.76 billion indicate an increase of 3.3% from the previous year’s period.
Street expects RM’s revenue for the quarter ending June 30, 2024, to increase 6.9% year-over-year to $142.72 million. Its EPS for the quarter ending September 30, 2024, is expected to grow by 21.4% year-over-year to $1.11. It has surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past six months, the stock has gained 36.2% to close the last trading session at $30.07.
RM’s positive outlook is reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It is ranked first in the Consumer Financial Services industry. It has an A grade for Value and a B for Stability, Sentiment, and Quality. To access RM’s grades for Growth and Momentum, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
FCFS shares were trading at $119.26 per share on Wednesday afternoon, up $0.24 (+0.20%). Year-to-date, FCFS has gained 10.35%, versus a 9.09% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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