Fintech company SoFi Technologies, Inc. (SOFI) provides digital financial services. The stock has been losing momentum since the beginning of the year owing to the turbulent market environment.
It has plunged 36.3% in price over the past six months and 60.5% year-to-date to close the last trading session at $6.19. It is currently trading 74.7% below its 52-week high of $24.65, which it hit on November 11, 2021.
The fintech company reported disappointing financial results in the second quarter of fiscal 2022. SOFI’s net loss and loss per share came in at $95.84 million and $0.12, respectively. Also, as of June 30, 2022, its total liabilities stood at $7.16 billion, compared to $4.48 billion as of December 31, 2021.
Given the company’s weak financials and growth prospects, SOFI is rated a Strong Sell in our proprietary rating system.
Therefore, investors should consider profitable financial services stock Forrester Research, Inc. (FORR) instead of SOFI. With a $760.15 billion market cap, FORR operates internationally as an independent research and advisory services company. The company operates through three segments: Research, Consulting, and Events.
FORR delivered solid results for the fiscal 2022 second quarter and continued to witness double-digit contract value growth, with revenue growth of 15% for the period. Additionally, the company generated positive cash flow, further allowing it to invest in marketing, sales, and technology.
Given FORR’s solid financial results and confidence in its ability to manage costs, the company has reiterated its full-year guidance for adjusted operating margin and EPS. The company now expects a full-year adjusted operating margin of approximately 11.5% to 12.5% and adjusted earnings per share of $2.25 to $2.35.
FORR has declined 7% over the past month to close the last trading session at $40.05. However, Wall Street analysts expect the stock to hit the average price target of $65.00 in the near term, representing a 62.3% upside potential.
Here is what could influence FORR’s performance in the upcoming months:
Solid Financials
In the fiscal 2022 second quarter ended June 30, 2022, FORR’s revenues increased 15.2% year-over-year to $148.25 million. The company's operating income amounted to $20.70 million, up 58.2% year-over-year. Its income before income taxes grew 71.6% from the prior-year period to $20.27 million.
Furthermore, the company’s adjusted net income came in at $19.22 million, registering an increase of 51.4% year-over-year. Its adjusted EPS rose 51.5% from the year-ago value to $1.00. As of June 30, its cash, cash equivalents, and marketable investments stood at $122.61 million.
Favorable Analyst Estimates
Analysts expect FORR’s revenue for the fiscal year 2022 (ending December 2022) to come in at $540.98 million, indicating an increase of 9.4% from the prior-year period. The current year's $2.30 consensus EPS estimate indicates a 10.1% year-over-year growth. The company has topped the consensus revenue estimates in each of the trailing four quarters.
In addition, FORR’s revenue for fiscal 2023 is expected to rise 8.1% from the previous year to $584.58 million. Analysts expect the EPS for the year to grow 15.9% year-over-year to $2.67.
High Profitability
FORR’s trailing-12-month gross profit margin of 58.80% is 102.1% higher than the 29.10% industry average. Its trailing-12-month levered FCF margin of 12.33% is 246.9% higher than the 3.55% industry average. And the stock’s trailing-12-month ROCE and ROTC of 14.85% and 7.86% are higher than the industry averages of 14.29% and 6.66%, respectively.
Discounted Valuation
In terms of trailing-12-month PEG, FORR is currently trading at 0.15x, 55.9% lower than the industry average of 0.33x. The stock’s trailing-12-month EV/Sales multiple of 1.46 is 13.6% lower than the industry average of 1.69. Likewise, its trailing-12-month Price/Cash Flow of 10.60x compares with the industry average of 15.56x.
POWR Ratings Show Promise
FORR's overall A rating equates to a Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. FORR has a grade of A for Quality, in sync with its higher-than-industry profitability metrics. In addition, it has a grade A for Growth, consistent with the impressive revenue and earnings growth estimates.
FORR is ranked #1 out of 107 stocks in the Financial Services (Enterprise) industry.
Beyond what I have stated above, we have also given FORR grades for Sentiment, Value, Momentum, and Stability. Get access to all FORR Ratings here.
Bottom Line
FORR has delivered impressive top- and-bottom-line results in its last quarter. And analysts are bullish about the company’s revenue and earnings growth prospects. Moreover, the company has reaffirmed its guidance for adjusted operating margin and EPS for the full year.
Therefore, FORR appears to be a better investment than SOFI, which is rated F (Strong Sell) in our proprietary rating system.
FORR shares were unchanged in premarket trading Friday. Year-to-date, FORR has declined -31.81%, versus a -15.08% 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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