The use of technology in offering financial services has boosted the prospects of the consumer financial services sector. Traditional financial services have been disrupted by the use of technology, leading to personalized services, better risk assessment, and enhanced security measures.
Therefore, it could be wise to buy fundamentally strong consumer financial stocks PayPal Holdings, Inc. (PYPL), AssetMark Financial Holdings, Inc. (AMK), and EZCORP, Inc. (EZPW).
Before diving deeper into the fundamentals of these stocks, let’s discuss what could drive the consumer financial sector’s performance.
Consumer financial services companies offer financial products and services to individuals, households, and small businesses. The sector comprises banking, credit cards, payment services, tax preparation and planning, accounting, and wealth management.
The integration of advanced technologies such as AI, machine learning, and blockchain into financial products and services has made consumer financial services more accessible, convenient, efficient, and user-friendly. The proliferation of the Internet has also helped make consumer financial services available to a broader customer base, fueling financial inclusion and fostering industry growth.
The industry is well-positioned to grow in the long term due to the rising demand for personalized financial services such as easy consumer loans, digital wallets, etc. The global consumer finance market is projected to grow at a CAGR of 7.1% to reach $1.96 trillion by 2029.
With these favorable trends in mind, let’s delve into the fundamentals of the three Consumer Financial Services stock picks, beginning with the third choice.
Stock #3: PayPal Holdings, Inc. (PYPL)
PYPL operates a technology platform that enables digital payments on behalf of merchants and consumers worldwide. The company provides payment solutions under PayPal, PayPal Credit, Braintree, Venmo, Xoom, PayPal Zettle, Hyperwallet, PayPal Honey, and Paidy names.
On August 7, 2023, PYPL announced the launch of a U.S. dollar-denominated stablecoin, PayPal USD (PYUSD). U.S. dollar deposits, short-term U.S. Treasuries, and similar cash equivalents fully back the stablecoin. PayPal USD is redeemable 1:1 for U.S. dollars and is issued by Paxos Trust Company.
PYPL’s President and CEO Dan Schulman said, “The shift toward digital currencies requires a stable instrument that is both digitally native and easily connected to fiat currency like the U.S. dollar. Our commitment to responsible innovation and compliance, and our track record delivering new experiences to our customers, provides the foundation necessary to contribute to the growth of digital payments through PayPal USD.”
In terms of forward Price/Sales, PYPL’s 2.25x is 16.8% lower than the 2.71x industry average. Its 2.24x forward EV/Sales is 29.1% lower than the 3.16x industry average. Likewise, its 0.81x forward non-GAAP PEG is 44.4% lower than the 1.45x industry average.
PYPL’s total payment volume (TPV) for the third quarter ended September 30, 2023, rose 15.1% year-over-year to $387.70 billion. Its net revenues increased 8.4% over the prior-year quarter to $7.42 billion. The company’s non-GAAP net income increased 14% year-over-year to $1.43 billion. Also, its non-GAAP EPS came in at $1.30, representing an increase of 20.4% year-over-year.
Analysts expect PYPL’s EPS and revenue for the quarter ending December 31, 2023, to increase 10% and 6.6% year-over-year to $1.36 and $7.87 billion, respectively. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past month, the stock has gained 11% to close the last trading session at $62.56.
PYPL’s POWR Ratings reflect its solid prospects. It has an overall rating of B, equating 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 #12 out of 47 stocks in the B-rated Consumer Financial Services industry. It has a B grade for Growth and Momentum. Click here to see the additional ratings of PYPL for Value, Stability, Sentiment, and Quality.
Stock #2: AssetMark Financial Holdings, Inc. (AMK)
AMK provides wealth management and technology solutions in the United States. The company offers an open-architecture product platform, as well as client advice, asset allocation options, practice management, support services, and technology to the financial adviser channel. It also provides an integrated technology platform for advisers, advisory services, and a curated investment platform.
In terms of trailing-12-month EV/EBITDA, AMK’s 10.14x is 11.1% lower than the 11.40x industry average. Its 10.90x trailing-12-month EV/EBIT is 4.4% lower than the 11.40x industry average.
For the fiscal third quarter, which ended September 30, 2023, AMK’s total revenue rose 23.2% year-over-year to $190.52 million. Its adjusted EBITDA increased 26.2% over the prior-year quarter to $66.46 million. The company’s adjusted net income rose 31.6% year-over-year to $46.02 million. Also, its adjusted EPS came in at $0.62, representing an increase of 31.9% year-over-year.
For the quarter ending December 31, 2023, AMK’s EPS and revenue are expected to increase 24.1% and 11.6% year-over-year to $0.57 and $137.82 million, respectively. The stock has gained 30.4% year-to-date to close the last trading session at $29.99.
AMK’s POWR Ratings reflect this positive outlook. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
Within the same industry, it is ranked #5. It has an A grade for Momentum and a B for Growth, Stability, and Sentiment. To see the other ratings of AMK for Value and Quality, click here.
Stock #1: EZCORP, Inc. (EZPW)
EZPW provides pawn services. The company operates through three segments: U.S. Pawn, Latin America Pawn, and Other Investments. It offers pawn loans collateralized by tangible personal property, jewelry, consumer electronics, tools, sporting goods, and musical instruments. The company also sells merchandise, primarily collateral forfeited from pawn lending operations and pre-owned merchandise purchased from customers.
In terms of forward EV/EBITDA, EZPW’s 6.17x is 47.9% lower than the 11.85x industry average. Its 0.76x forward EV/Sales is 76.1% lower than the 3.16x industry average. Likewise, its 9.06x forward non-GAAP P/E is 15.6% lower than the 10.73x industry average.
EZPW’s total revenues for the fourth quarter ended September 30, 2023, increased 15.9% year-over-year to $270.48 million. Its adjusted gross profit rose 12.4% over the prior-year quarter to $154.60 million. The company’s adjusted net income increased 61.7% year-over-year to $17.30 million. Also, its adjusted EPS came in at $0.23, representing an increase of 53.3% year-over-year.
Street expects EZPW’s EPS and revenue for the quarter ending December 31, 2023, to increase 3.6% and 12.1% year-over-year to $0.29 and $296.28 million, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past three months, the stock has gained 15.2% to close the last trading session at $8.94.
EZPW’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.
It is ranked #3 in the Consumer Financial Services industry. It has a B grade for Growth, Value, and Momentum. Click here to see the other ratings of EZPW for Stability, Sentiment, and Quality.
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PYPL shares rose $0.19 (+0.30%) in premarket trading Wednesday. Year-to-date, PYPL has declined -11.68%, versus a 26.34% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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