Advancements in technology, like AI, blockchain, cloud, and data analytics, have transformed the way financial services are delivered. These technologies enable faster transactions, personalized services, and risk management. Moreover, consumers are increasingly adopting digital channels for banking, payments, investments, and insurance.
Given the industry’s bright prospects, fundamentally sound consumer finance stocks LendingTree, Inc. (TREE), PayPal Holdings, Inc. (PYPL), and FirstCash, Inc. (FCFS) could be solid additions to your portfolio for potential returns.
Increased technology adoption has rapidly transformed the financial services industry in recent years. Digitalization has revolutionized how transactions and lending are conducted, making the process much easier and more efficient. The digital lending platform market is expected to grow to $34.60 billion by 2028 at a CAGR of 21.9%.
The wide prevalence of open banking is anticipated to drive the future expansion of the digital lending platform market. Further, the easy and accessible loan facilities, automated processes, and financial analysis to banks will propel the market’s prospects.
Overall, the financial services market is expected to grow from $31.14 trillion in 2023 to $33.54 trillion in 2024 at a CAGR of 7.7%. Further, the market is projected to expand at a CAGR of 7.6% from 2024 to 2028, resulting in a market volume of $44.92 trillion by 2028.
During the forecast period, the financial services market growth can be attributed to rising high-net-worth individuals' (HNIs) wealth, increasing technology adoption, growth in individual investors' investments, growing home ownership and mortgages, economic growth, and rapid urbanization.
The growing integration of cutting-edge technologies in delivering financial services enhances the overall market’s effectiveness, improving customer experience. With a simplified and user-friendly financial environment, the ongoing digital wave is taking over the world.
Aspects like cloud-based enterprise solutions, big-data analytics tools, fintech software developments, and redesigning of organizational and business processes are shaping the financial services market’s future. The global fintech market stands to grow at a noteworthy CAGR of 14% during the forecast period (2024-2029), reaching $608.35 billion by 2029.
Investors’ interest in financial stocks is evident from the Vanguard Financials ETF's (VFH) 39.2% returns over the past year.
In light of these encouraging trends, let’s look at the fundamentals of the three best Consumer Financial Services stocks, beginning with number 3.
Stock #3: LendingTree, Inc. (TREE)
TREE operates an online consumer platform. Its three business segments include Home; Consumer; and Insurance. The company provides purchase mortgage, refinance mortgage, home equity loans and lines of credit, and real estate brokerage services.
On February 1, 2024, TREE launched its innovative, freshly redesigned and rebranded app, LendingTree Spring. It is a comprehensive platform committed to cultivating smart money habits and empowering customers to navigate their finances and credit health with confidence.
The app helps its members achieve their financial goals. It is built with features like free credit score insights, smart savings ideas, credit alerts and updates, personalized recommendations & simulations, and loan quotes and credit card offers.
For the fiscal fourth quarter that ended December 31, 2023, TREE reported a total revenue of $134.40 million. The company’s net income for the quarter was $12.70 million and $0.98 per share, against a net loss of $10.40 million and $0.81 per share during the prior year’s quarter, respectively.
As per the financial outlook for the first quarter of 2024, TREE expects its revenue to range between $158 million and $168 million, and its adjusted EBITDA is expected to range from $17 million to $21 million.
Also, for the fiscal year 2024, the company expects its revenue to be in the range of $650 - $690 million, whereas its adjusted EBITDA is expected to be $85 - $95 million, an increase of 8% to 21% from 2023.
Analysts expect TREE’s EPS to increase 22.9% year-over-year to $0.75 for the third quarter (ending September 2024), and its revenue is expected to grow 10.3% year-over-year to $171.21 million for the same period. Moreover, the company surpassed the consensus EPS estimates in three of the trailing four quarters.
TREE’s stock has gained 189.7% over the past six months and 59.4% over the past year to close the last trading session at $43.34.
TREE’s promising outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has a B grade for Quality, Value, and Sentiment. Within the B-rated Consumer Financial Services industry, TREE is ranked #18 among 46 stocks.
Click here to access additional ratings of TREE (Stability, Growth, and Momentum).
Stock #2: PayPal Holdings, Inc. (PYPL)
PYPL offers a technology platform that enables merchants and consumers to make global digital payments. It runs a two-sided network at scale that connects merchants and consumers, allowing customers to connect, transact, and send and receive payments. It operates under PayPal, PayPal Credit, Braintree, Venmo, Zettle, Hyperwallet, Honey, and Paidy names.
On January 25, 2024, PYPL announced six new innovations to pilot and bring to market this year to revolutionize commerce through AI-driven personalization for merchants and consumers. These innovations include Fastlane by PayPal, Smart Receipts, PayPal advanced offers platform, PayPal consumer app, and Venmo's enhanced business profiles.
The newly introduced innovations will upscale PYPL at a global level, in combination with the power of AI, and deliver the next generation of value for both consumers and merchants.
On September 12, 2023, PYPL and Uber Technologies, Inc. (UBER) extended their multi-year relationship, furthering PYPL's role as a key operational partner in Uber's continued growth in both its core and new lines of business in markets all over the world.
With this agreement extension, UBER’s use of PYPL's vast portfolio of products and services will continue to be a superior contributor to driving high authorization rates and more successful transactions.
For the fourth quarter that ended December 31, 2023, PYPL’s net revenues increased 8.7% year-over-year to $8.03 billion. Its non-GAAP operating income grew 10.6% from the year-ago value to $1.87 billion. The company’s non-GAAP net income and non-GAAP EPS were $1.60 billion and $1.48, up 13.2% and 19.3% year-over-year, respectively.
In addition, the company’s free cash flow came in at $2.47 billion, an increase of 72.3% from the previous year’s quarter.
The company provided financial guidance for the first quarter and full year 2024. PYPL expects 6.5% to 7% in its net revenue, and its non-GAAP EPS is expected to increase by mid-single digits during the first quarter. For the full year, the company expects non-GAAP EPS to be in line with $5.10 in the prior year.
Street expects PYPL’s revenue and EPS for the first quarter (ending March 2024) to increase 6.8% and 4.2% year-over-year to $7.52 billion and $1.22, respectively. Furthermore, the company topped the consensus revenue estimates in each of the trailing four quarters, which is impressive.
Over the past month, the stock has gained 13.8% and 12.8% over the past six months to close the last trading session at $66.14.
PYPL’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall grade of B, equating to a Buy in our proprietary rating system.
PYPL has a B grade for Growth and Momentum. The stock is ranked #12 out of 46 stocks within the same industry.
To see the other ratings of PYPL for Sentiment, Value, Quality, and Stability, click here.
Stock #1: FirstCash, Inc. (FCFS)
FCFS operates retail pawn stores in the United States, Mexico, and the rest of Latin America. It operates in U.S. Pawn; Latin America Pawn; and Retail POS Payment Solutions segments. It lends money on the collateral of pledged personal property, including jewelry, electronics, tools, and appliances. The company also offers retail POS payment solutions.
In terms of forward EV/Sales, FCFS is trading at 2.10x, 31.1% lower than the industry average of 3.05x. Likewise, the stock’s forward Price/Sales multiple of 1.59 is 37.3% lower than the industry average of 2.53.
Over the past three years, FCFS’ revenue and EBITDA have grown at CAGRs of 24.5% and 29.1%, respectively. The company’s EBIT has increased 27.2% over the same time frame, while its net income and EPS have improved at respective CAGRs of 27.2% and 23.3%, respectively.
During the fourth quarter that ended December 31, 2023, FCFS’ revenue increased 12.5% year-over-year to $852.13 million. Its adjusted net income and adjusted EPS came in at $92.85 million and $2.04, up 21.1% and 23.6% from the prior year’s quarter, respectively. The company’s adjusted EBITDA of $161.70 million indicates an increase of 23.7% year-over-year.
In addition, the company’s total current assets came in at $1.31 billion as of December 31, 2023, compared to $1.13 billion as of December 31, 2022.
Analysts expect FCFS’ revenue and EPS for the first quarter (ending March 2024) to grow 10.7% and 21.4% year-over-year to $844.67 million and $1.52, respectively. Moreover, the company has exceeded the consensus EPS estimates in all four trailing quarters, which is remarkable.
Shares of FCFS have surged 28.1% over the past six months and 29.9% over the past year to close the last trading session at $122.86.
FCFS’ POWR Ratings reflect its solid prospects. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
FCFS has a B grade for Growth, Momentum, Quality, and Stability. It is ranked #7 among 46 stocks in the B-rated Consumer Financial Services industry.
In addition to the POWR Ratings highlighted above, you can check FCFS’s ratings for Value and Sentiment 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.
PYPL shares rose $0.08 (+0.12%) in premarket trading Friday. Year-to-date, PYPL has gained 7.70%, versus a 10.21% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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