The headwinds of high inflation, aggressive interest rate hikes, and the worst banking crisis since 2008 have damaged investor sentiments. Last month’s bank failures have put the financial sector under scanner as investors remain nervous about the sector’s stability.
However, the financial regulators acted swiftly to restore stability. President Biden reassured that the banking system was safe. Given the solid prospects of the financial industry, investors could look to invest in fundamentally strong stocks Everi Holdings Inc. (EVRI), Forrester Research, Inc. (FORR), and CPI Card Group Inc. (PMTS).
Let’s discuss why these financial stocks could be good investment choices.
The bank failures last month came as a surprise leading to a sharp sell-off in banking and financial names. However, not every financial company or bank has the same problems as the failed institutions. Thus, this sell-off provides an excellent opportunity to buy financial companies with solid growth prospects.
Although inflation has widely cooled off, as evident in February’s report, it remains well above the Federal Reserve’s target of 2%. Due to the banking crisis, the central bank went ahead with a 25 basis point interest rate hike, in line with analyst estimates.
With inflation remaining above the Fed’s comfort level, the central bank will likely go ahead with higher rate hikes. Although a restrictive monetary policy could be challenging for borrowers, with borrowing getting expensive, rising interest rates boost the revenues of financial companies.
Moreover, the long-term prospects of the financial services industry look solid due to the growth and potential of digital transactions. The financial services market is expected to grow to $37.48 trillion at a CAGR of 7.5% by 2027. Investors’ interest in financial stocks is evident from the iShares U.S. Financial Services ETF’s (IYG) 6.9% returns over the past six months.
Given these factors, investors could look to buy financial stocks EVRI, FORR, and PMTS.
Everi Holdings Inc. (EVRI)
EVRI develops and supplies entertaining game content, gaming machines, and gaming systems and services for land-based and iGaming operators worldwide. It operates in two segments, Games and Financial Technology Solutions.
On February 21, 2023, Venuetize, EVRI’s mobile technology and advanced e-commerce platform for sports, hospitality, and entertainment industries, announced its strategic agreement with 1839 Labs, which will involve the companies integrating their respective solutions to elevate the experience of fans, spectators, and guests within sporting and other mixed-use venues around the globe.
EVRI’s executive VP and FinTech business leader, Darren Simmons, believes the agreement represents a significant opportunity to showcase EVRI’s Venuetize platform’s unique mobile-focused consumer-engagement capabilities while improving the platform to pursue other opportunities. Last year in October, EVRI acquired the strategic assets of Venuetize.
In terms of the trailing-12-month EBIT margin, EVRI’s 27.26% is 250.8% higher than the 7.77% industry average. Its 11.47% trailing-12-month levered FCF margin is 499.3% higher than the 1.91% industry average. Likewise, its 16.30% trailing-12-month CAPEX/Sales is 407.1% higher than the industry average of 3.21%.
EVRI’s total revenues increased 13.8% year-over-year to $205.36 million for the fourth quarter that ended December 31, 2022. Its operating income increased 7.8% year-over-year to $51.59 million.
Moreover, its adjusted EBITDA came in at $93.40 million, representing a 5.2% increase from the prior-year quarter. Also, its free cash flow rose 111.3% over the prior-year quarter to $41.70 million.
EVRI’s EPS for fiscal 2024 is expected to increase 13.6% year-over-year to $1.18. Its revenue for the quarter that ended March 2023 is expected to increase 9% year-over-year to $191.47 million. It has an impressive earnings surprise history, surpassing its consensus EPS estimates in three of the trailing four quarters.
The stock has gained 19.5% year-to-date to close the last trading session at $17.15.
EVRI’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
In addition, it has an A grade for Quality and a B for Value and Sentiment. Within the Financial Services (Enterprise) industry, it is ranked #2 out of 103 stocks. To see the additional POWR Ratings of EVRI for Growth, Momentum, and Stability, click here.
Forrester Research, Inc. (FORR)
FORR operates as an independent research and advisory services company. The company operates in three segments: Research; Consulting; and Events. It sells its products and services through a direct sales force in various locations worldwide.
In terms of the trailing-12-month gross profit margin, FORR’s 58.39% is 99.3% higher than the 29.29% industry average. Its 7.57% trailing-12-month return on total capital is 8.8% higher than the 6.96% industry average. Likewise, its 8.48% trailing-12-month levered FCF margin is 120.1% higher than the industry average of 3.85%.
On January 23, 2023, FORR introduced Forrester Decisions for Partner Ecosystem Marketing, the next generation of its Forrester Decisions for Channel Marketing service.
FORR’s VP and research director, Maria Chien, said, “The Partner Ecosystem Marketing service within our Forrester Decisions portfolio will ensure that marketing leaders have access to the research and tools they need to fully capitalize on their partner ecosystems to drive business growth.”
For the fiscal year ended December 31, 2022, FORR’s total revenues increased 8.8% year-over-year to $537.79 million. The company’s adjusted net income increased 16.5% from the prior-year to $47.22 million. In addition, its adjusted EPS came in at $2.46, representing an increase of 17.7% year-over-year.
FORR’s EPS and revenue for the fiscal year 2024 are expected to increase 14.1% and 5.4% year-over-year to $2.67 and $556.91 million, respectively. The company has an excellent earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
Over the past month, the stock has fallen 1.6% to close the last trading session at $32.35.
FORR’s POWR Ratings reflect solid prospects. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. It is ranked first in the same industry. It has an A grade for Quality and a B for Sentiment.
In total, we rate FORR on eight different levels. Beyond what we stated above, we have also given FORR grades for Growth, Value, Momentum, and Stability. Get all FORR ratings here.
CPI Card Group Inc. (PMTS)
PMTS engages in designing, producing, data personalizing, packaging, and fulfilling financial payment cards. It operates through Debit, and Credit, and Prepaid Debit segments.
In terms of the trailing-12-month EBIT margin, PMTS’ 16.63% is 260.9% higher than the 4.61% industry average. Its 7.68% trailing-12-month net income margin is 183.7% higher than the 2.71% industry average. Likewise, its 1.68x trailing-12-month asset turnover ratio is 178.8% higher than the industry average of 0.60x.
For the fiscal fourth quarter that ended December 31, 2022, PMTS’s total net sales increased 35.7% year-over-year to $126.44 million. The company’s income from operations increased 146% year-over-year to $22.65 million. Its net income increased significantly year-over-year to $12.48 million.
Additionally, its EPS came in at $1.06, representing a 100% increase from the year-ago period. Also, its adjusted EBITDA rose 100.3% year-over-year to $27.20 million.
PMTS’ EPS and revenue for the quarter ending March 31, 2023, are expected to increase 5.9% and 2.1% year-over-year to $0.54 and $113.80 million, respectively. It has a commendable earnings surprise history, surpassing its consensus EPS estimates in each of the trailing four quarters.
Over the past six months, the stock has gained 185.6% to close the last trading session at $45.01.
PMTS’ POWR Ratings reflect its positive outlook. It has an overall rating of B, which equates to a Buy. It is ranked #3 in the Financial Services (Enterprise) industry. In addition, it has an A grade for Growth and a B for Sentiment.
Click here to see the other ratings of PMTS for Value, Momentum, Stability, and Quality.
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EVRI shares rose $0.14 (+0.82%) in premarket trading Monday. Year-to-date, EVRI has gained 20.49%, versus a 7.33% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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