The financial services sector benefits from the growing popularity of finance apps for budgeting, increased internet access, advanced fintech solutions, wider financial service availability, and favorable government policies. However, it also grapples with challenges like cybersecurity crises, regulatory shifts, possible mergers, and racial disparities in lending practices.
Therefore, I think fundamentally weak financial stocks UWM Holdings Corporation (UWMC), LendingClub Corporation (LC), and Edenred SE (EDNMY) might be best avoided now.
The global consumer finance market is poised to hit $1.96 trillion by 2029, growing at 7.1% CAGR. Companies thrive by focusing on market reach, partnerships, and innovation. Advancements in AI, data analytics, blockchain, and cloud tech enhance services, risk management, and competitiveness, spurred by resilient consumer spending, income growth, and digital finance trends.
Meanwhile, the consumer financial services sector faces challenges like revenue pressure, stricter regulation, and heightened competition from digital newcomers. These difficulties were amplified by the COVID-19 crisis, resulting in substantial credit losses and increased strain on the banking sector, thus impacting the financial services sector as a whole.
Considering these trends, let’s analyze the fundamental aspects of the three Consumer Financial Services stocks, starting with the third choice.
Stock #3: UWM Holdings Corporation (UWMC)
UWMC engages in the residential mortgage lending business in the United States. The company offers mortgage loans through a wholesale channel. It primarily originates conforming and government loans.
In terms of the trailing 12-month net income margin, UWMC’s 0.33% is 98.6% lower than the industry average of 23%. Likewise, its trailing 12-month Return on Common Equity and Return on Total Capital of 6.26% and 3.36% are 41.2% and 51.3% lower than the industry averages of 10.65% and 6.90%, respectively.
During the first quarter ended March 31, 2024, UWMC’s total expenses stood at $385.69 million, increased 28.2% year-over-year. As of March 31, 2024, UWMC’s total liabilities stood at $10.34 billion, compared to $8.07 billion as of March 31, 2023. Also, its cash and cash equivalents stood at $605.64 million, compared to $740.06 million for the same period.
For the quarter ending June 30, 2024, UWMC’s EPS is expected to decrease 10.5% year-over-year to $0.07. Its revenue for the same quarter is expected to decrease 8.1% year-over-year to $539.74 million. UWMC’s stock has declined 2.8% year-to-date to close the last trading session at $6.95.
UWMC’s weak fundamentals are reflected in its POWR Ratings. It has an overall rating of F, equating to a Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a D grade for Value, Stability, Sentiment, and Quality. It is ranked last out of 44 stocks in the Consumer Financial Services industry. To see UWMC’s Growth, and Momentum ratings, click here.
Stock #2: LendingClub Corporation (LC)
LC operates as a bank holding company that provides a range of financial products and services in the United States. It offers deposit products, including savings accounts, checking accounts, and certificates of deposit.
In terms of the trailing 12-month EBIT margin, LC’s 5.14% is 77.82% lower than the industry average of 23.15%. Its 0.12x trailing-12-month asset turnover ratio is 43.6% lower than the industry average of 0.22x. Also, the stock’s 23.99% trailing-12-month gross profit margin is 59.7% lower than the industry average of 59.44%.
LC’s total revenues for the fiscal first quarter ended March 31, 2024, amounted to $180.69 million, down 26.5% year-over-year. Likewise, its net income and EPS decreased 10.4% and 15.4% over the prior-year quarter to $12.25 million and $0.11, respectively. Moreover, as of March 31, 2024, LC’s total liabilities stood at $7.98 billion, compared to $7.58 billion as of December 31, 2023.
Analysts expect LC’s EPS and revenue for the quarter ending June 30, 2024, to decrease 58.3% and 23.7% year-over-year, reaching $0.04 and $177.49 million, respectively. Shares of LC has declined 3.3% intraday to close the last trading session at $8.98.
LC’s grim outlook justifies its overall rating of D, which translates to a Sell in our proprietary POWR Ratings system.
It has a D grade for Growth, and Quality. Within the same industry, it is ranked #42. Beyond what we have stated above, we also have given LC grades for Value, Momentum, Stability, and Sentiment. Get all the LC ratings here.
Stock #1: Edenred SE (EDNMY)
Headquartered in Issy-les-Moulineaux, France, Edenred SE provides a digital platform for services and payments for companies, employees, and merchants worldwide.
In terms of the trailing 12-month gross profit margin, EDNMY’s 41.19% is 30.7% lower than the industry average of 59.44%. Similarly, EDNMY’s 0.19x trailing-12-month asset turnover ratio is 12.8% lower than the industry average of 0.22x. Also, its 11.55% trailing-12-month net income margin is 498% lower than the industry average of 23%.
For the fiscal ended December 31, 2023, EDNMY’s total revenue amounted to €2.51 billion ($2.72 billion). The company’s net profit and EPS amounted to €308 million ($333.47 million) and €1.01, respectively, representing a decrease of 26.1% and 30.8% from the previous year’s period.
Furthermore, as of December 31, 2023, EDNMY’s total current liabilities came in at €9.72 billion ($10.53 billion), compared to €8.50 billion ($9.20 billion) as of December 31, 2022.
Over the past year, the stock has declined 25.6% to close the last trading session at $24.55.
EDNMY’s bleak prospects are reflected in its POWR Ratings. It has an overall rating of D, equating to a Sell in our proprietary rating system.
It is ranked #41 in the Consumer Financial Services industry. It has a D grade for Growth, and Value. To access EDNMY’s grades for Momentum, Stability, Sentiment, and Quality, 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.
EDNMY shares were trading at $24.42 per share on Friday morning, down $0.13 (-0.53%). Year-to-date, EDNMY has declined -17.78%, versus a 11.70% 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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