The U.S. financial services industry is being driven by the growing demand for insurance and loans among consumers. Globalization and urbanization are leading to increasing demand for end-user investments. The industry is also propelled by global economic growth, leading to the increased demand for financial services.
Moreover, a growing demand in the digital finance market is driven by consumers' increasing preference for accessing financial services on the go. Younger demographics, in particular, favor digital-first solutions for managing their finances, from everyday transactions to complex investment strategies. The global digital finance market is expected to grow at a CAGR of 13.6% by 2033.
Against this backdrop, let’s compare two consumer finance stocks, FirstCash Holdings, Inc. (FCFS) and LM Funding America, Inc. (LMFA), to determine which consumer finance stock holds more promise.
The Case for FirstCash Holdings, Inc. Stock
With a $5.09 billion market cap, FirstCash Holdings, Inc. (FCFS) operates 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.
On August 8, 2024, FCFS, the leading international operator of more than 3,000 retail pawn stores and a leading provider of retail point-of-sale (POS) payment solutions, announced that it had amended the terms of its long-term, unsecured bank credit facility to increase the size of the commitment to $700 million and extend the maturity date to August 2029.
FCFS’ stock has gained 1.1% over the past month to close the last trading session at $109.64.
FCFS’ forward EV/Sales of 2.01x is 40.4% lower than the industry average of 3.38x. In terms of forward Price/Sales, it is trading at 1.44x, 55.3% lower than the industry average of 3.23x.
During the third quarter that ended September 30, 2024, FCFS’ non-GAAP revenue increased 6.5% year-over-year to $837.32 million. Its non-GAAP net income and EPS came in at $75.18 million and $1.67, up 6.2% and 7.1% from the prior year’s quarter, respectively. In addition, the company’s non-GAAP EBITDA of $139.28 million indicates an increase of 4.7% year-over-year.
Street expects FCFS’ revenue for the fourth quarter ending December 2024 to increase 5.4% year-over-year to $898.13 million. Its EPS is expected to be $2.01 for the same quarter. Moreover, the company has surpassed EPS estimates in each of the trailing four quarters.
FCFS’ POWR Ratings reflect its robust outlook. 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, with each factor weighted to an optimal degree.
FCFS has a B grade for Stability and Momentum. It is ranked #7 out of 47 stocks in the Consumer Financial Services industry.
Click here for the additional POWR Ratings for FCFS (Value, Growth, Sentiment, and Quality).
The Case for LM Funding America, Inc. Stock
Valued at $9.85 million by market cap, LM Funding America, Inc. (LMFA) operates as a cryptocurrency mining and specialty finance company. It operates through two segments: Specialty Finance and Mining Operations. The company also engages in Bitcoin mining operations and provides funding to nonprofit community associations.
LMFA’s stock has plunged 42.8% over the past six months to close the last trading session at $2.90.
In the fiscal third quarter that ended June 30, 2024, LMFA’s total revenues declined 63.3% year-over-year to $1.26 million, while its net loss increased 2.9% year-over-year to $4.80 million. The company’s loss per common share grew 22.3% year-over-year to $2.41.
Analysts expect LMFA’s revenue for the fourth quarter (ending December 2024) to decrease 63% year-over-year to $1.50 million. The company’s EPS for the same quarter is expected to decline 149.3% year-over-year to $1.67.
LMFA’s bleak fundamentals are reflected in its POWR Ratings. It has an overall rating of D, equating to a Sell in our proprietary rating system.
The stock has an F grade for Stability and Growth and a D for Quality. Within the same industry, LMFA is ranked #45.
In addition to the POWR Ratings I’ve just highlighted, you can see LMFA’s ratings for Momentum, Value, and Sentiment here.
FirstCash Holdings (FCFS) vs. LM Funding America (LMFA): Which Financial Services Stock Holds More Promise?
The financial services industry is fueled by rising consumer demand for insurance, loans, and end-user investments. Additionally, the digital finance market is expanding as younger consumers increasingly prefer mobile, digital-first solutions for financial management, from daily transactions to advanced investments.
Leading consumer finance companies FCFS and LMFA stand to capitalize on bright industry growth prospects. However, FCFS’ strong financial results and promising near-term outlook favor it as the better consumer finance stock pick.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Consumer Financial Services industry here.
What To Do Next?
Get your hands on this special report with 3 low priced companies with tremendous upside potential even in today’s volatile markets:
3 Stocks to DOUBLE This Year >
FCFS shares were trading at $108.24 per share on Thursday afternoon, down $1.40 (-1.28%). Year-to-date, FCFS has gained 1.14%, versus a 28.51% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
FirstCash Holdings (FCFS) vs. LM Funding America (LMFA): Which Financial Services Stock Holds More Promise? StockNews.com
