The financial services sector includes those companies that offer investment banking, consumer banking, lending, insurance, or credit card services. With the industry benefitting from high-interest rates, it could provide a strategic investment opportunity to investors while other sectors face pressures from restrictive monetary policies.
Therefore, investors could consider buying fundamentally strong financial stocks Enova International, Inc. (ENVA) and Regional Management Corp. (RM).
Before taking a look at their fundamentals, let’s discuss what’s happening in the financial sector.
The consumer price index rose 4.9% in April, compared to the 5% rise in March. The Fed had hinted at a pause in the hiking cycle if inflation continued to ease. Although inflation remains above the Fed’s target level, the central bank might consider pausing the rate hikes due to the challenges faced by the banking system.
Lead US economist at Oxford Economics, Oren Klachkin, stated, “We think the Fed will maintain a hawkish bias through year-end and won’t hesitate to raise rates again if inflation and the labor market data surprise strongly to the upside,” Klachkin warned.
While most sectors of the economy struggle amid rising interest rates, consumer financial companies benefit from higher interest rates as it helps them increase their profit margins. With borrowing rates rising, these companies earn higher interest on loans.
Given these factors, investors could look to buy fundamentally strong financial stocks ENVA and RM.
Let’s take a closer look at their fundamentals.
Enova International, Inc. (ENVA)
ENVA, a technology and analytics company, provides online financial services in the United States, Brazil, Australia, and Canada. The company offers installment loans, line of credit accounts, receivables purchase agreements, CSO programs, and bank programs
In terms of forward non-GAAP P/E, ENVA’s 5.63x is 30.1% lower than the 8.05x industry average. Likewise, its 0.67x forward Price/Sales is 64.8% lower than the 1.89x industry average.
ENVA’s net revenue increased 6.4% year-over-year to $285.89 million for the first quarter that ended March 31, 2023. The company’s adjusted earnings increased marginally year-over-year to $58.67 million. Its adjusted EBITDA increased 19.1% year-over-year to $125.78 million. Additionally, its adjusted EPS came in at $1.79, representing a 7.2% increase from the prior-year quarter.
ENVA’s EPS and revenue for the quarter ending June 30, 2023, are expected to increase 2.1% and 19.2% year-over-year to $1.68 and $486.18 million, respectively. It has a commendable earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 37.9% to close the last trading session at $42.59.
ENVA’s strong fundamentals are 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 assess stocks by 118 different factors, each with its own weighting.
It is ranked #9 out of 49 stocks in the Consumer Financial Services industry. It has a B grade for Value. We have also given ENVA grades for Growth, Momentum, Stability, Sentiment, and Quality. Get all ENVA ratings here.
Regional Management Corp. (RM)
RM, a diversified consumer finance company, provides various installment loan products primarily to customers with limited access to consumer credit from banks, thrifts, credit card companies, and other lenders. It offers small and large installment loans, retail loans, and other retail products.
In terms of forward non-GAAP P/E, RM’s 5.27x is 34.6% lower than the 8.05x industry average. Its 0.46x forward Price/Sales is 75.7% lower than the 1.89x industry average. Likewise, its 8.53x forward EV/EBIT is 20.9% lower than the 10.78x industry average.
For the fiscal first quarter that ended March 31, 2022, RM’s total revenue increased 12% year-over-year to $135.38 million. The company’s total assets increased 13.6% year-over-year to $1.70 billion. Moreover, its net EPS came in at $0.90.
Analysts expect RM’s EPS for the quarter ending September 30, 2023, to increase 46.7% year-over-year to $1.56. Its revenue for the quarter ending June 30, 2023, is expected to increase 5.7% year-over-year to $129.84 million.
It has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. Over the past month, the stock has fallen 2.2% to close the last trading session at $25.71.
RM’s POWR Ratings reflect this positive outlook. It has an overall rating of B, which translates to a Buy in our proprietary rating system. It is ranked first in the same industry. The stock has an A grade for Value and a B for Stability and Quality. Click here to access the POWR Ratings of RM for Growth, Momentum, and Sentiment.
What To Do Next?
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ENVA shares were trading at $42.73 per share on Friday afternoon, up $0.14 (+0.33%). Year-to-date, ENVA has gained 11.36%, versus a 7.75% 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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