Consumer financial services companies offer financial products and services to individuals, households, and small businesses. Although rising interest rates benefit financial companies, tighter lending standards in the wake of bank failures will pressure consumer financial services companies.
Therefore, it could be wise to avoid fundamentally weak consumer financial services stocks Sunlight Financial Holdings Inc. (SUNL), Guardforce AI Co., Limited (GFAI), and Sentage Holdings Inc. (SNTG).
Before diving deeper into the fundamentals of these stocks, let’s discuss what’s happening in the financial sector.
With the failures of the SVB and Signature Bank, the credit standards will likely be tighter amid a high-interest rate environment, indicating lesser lending activity in the financial sector.
Earlier this week, the Fed announced its tenth interest rate hike of 25 basis points, taking the Fed funds rate to between 5% and 5.25%, the highest since September 2007.
Rising interest rates help financial companies expand their top line. On the flip side, higher interest rates also impact the demand for loans as it becomes expensive to borrow money. Moreover, with fears of a recession later this year, economic activity is expected to take a hit which could further affect the demand for credit.
Given this scenario, avoiding the featured consumer financial services stocks could be wise.
Let’s discuss their fundamentals in detail.
Sunlight Financial Holdings Inc. (SUNL)
SUNL operates a business-to-business-to-consumer technology-enabled point-of-sale financing platform. Its platform provides secured and unsecured loans for homeowners originated by third-party lenders to purchase and install residential solar energy systems and other home improvements.
SUNL’s 0.14x trailing-12-month asset turnover ratio is 28.3% lower than the 0.20x industry average. Likewise, its trailing-12-month EBIT margin is negative 67.25% compared to the 21.80% industry average. Furthermore, the stock’s negative 15.95% trailing-12-month EBITDA margin compares to the industry average of 20.78%.
For the fourth quarter ended December 31, 2022, SUNL’s total revenue declined 82.7% year-over-year to $6.34 million. The company’s adjusted net loss came in at $3.07 million, compared to an adjusted net income of $10.26 million in the year-ago quarter.
Its adjusted EBITDA loss came in at $23.29 million, compared to an adjusted EBITDA of $18.55 million in the prior-year quarter. In addition, its adjusted loss per Class A share came in at $0.02, compared to an adjusted net income per Class A share of $0.06 in the prior-year quarter.
Analysts expect SUNL’s EPS for the quarter ended March 31, 2023, to be negative. Its revenue for the same quarter is expected to decline 39.5% year-over-year to $17.08 million. Over the past year, the stock has declined 90.3% to close the last trading session at $0.43.
SUNL’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall D rating, equating to a Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It is ranked #45 out of 48 stocks in the D-rated Consumer Financial Services industry. It has an F grade for Quality and a D for Momentum and Stability. Click here to see the other ratings of SUNL for Growth, Value, and Sentiment.
Guardforce AI Co., Limited (GFAI)
Based in Singapore, GFAI offers cash solutions and cash handling services in Thailand. The company’s services include cash-in-transit, vehicles to banks, ATM management, cash center operations, cash processing, coin processing, cheque center services, and cash deposit machine solutions, such as cash deposit management and express cash services. Its customers include local commercial banks and chain retailers.
GFAI’s 9.54% trailing-12-month gross profit margin is 68.2% lower than the 30.01% industry average. Its trailing-12-month EBIT margin is negative 34.90% compared to the 9.60% industry average. Furthermore, the stock’s negative 63.56% trailing-12-month levered FCF margin compares to the industry average of 4.81%.
For the fiscal year ended December 31, 2022, GFAI’s revenue declined 1.9% year-over-year to $34.48 million. Its operating loss widened 356% over the prior-year period to $16.89 million. The company’s net loss attributable to equity holders of the company widened 238.7% year-over-year to $18.56 million. In addition, its loss per share widened 25.8% year-over-year to $14.97.
Over the past year, the stock has declined 74% to close the last trading session at $6.70.
GFAI’s weak prospects are reflected in its POWR Ratings. It has an overall F rating, equating to a Strong Sell in our proprietary rating system.
Within the same industry, it is ranked last. It has an F grade for Value and Stability and a D for Growth and Quality. To see the other ratings of GFAI for Momentum and Sentiment, click here.
Sentage Holdings Inc. (SNTG)
SNTG provides a range of financial services. The company offers consumer loan repayment and collection management, loan recommendation, and prepaid payment network services in China. It is based in Shanghai, China.
SNTG’s 0.01x trailing-12-month asset turnover ratio is 98.7% lower than the 0.80x industry average. Its trailing-12-month Return on Common Equity is negative 16.53% compared to the 13.83% industry average. Furthermore, the stock’s negative 17.48% trailing-12-month Return on Total Assets compares to the industry average of 5.07%.
For the fiscal year ended December 31, 2022, SNTG’s total operating revenue declined 92.9% year-over-year to $161,372. Its net loss widened 134.3% year-over-year to $2.56 million. In addition, its loss per share widened 134.8% year-over-year to $1.08.
Over the past six months, SNTG’s stock has declined 14.4% to close the last trading session at $3.50.
SNTG’s POWR Ratings reflect this weak outlook. It has an overall rating of D, which translates to a Sell in our proprietary rating system.
It is ranked #47 in the Consumer Financial Services industry. It has a D grade for Value, Stability, and Quality. Click here to see the other ratings of SNTG for Growth, Momentum, and Sentiment.
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SUNL shares were unchanged in premarket trading Friday. Year-to-date, SUNL has declined -66.67%, versus a 6.34% 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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