Financial firms serve as the backbone of the economy, providing essential services from lending and investment management to risk management and payment processing. Still, investors are uneasy as companies face challenges from an unpredictable interest rate and inflation environment. These doubts have certainly contributed to the indutry's recent underperformance - over the past six months, its 4.2% gain has fallen behind the S&P 500's 13.2% rise.
The elite companies can churn out earnings growth under any circumstance, however, and our mission at StockStory is to help you find them. With that said, here is one financials stock boasting a durable advantage and two we’re steering clear of.
Two Financials Stocks to Sell:
Goldman Sachs (GS)
Market Cap: $284.8 billion
Founded in 1869 as a small commercial paper business in New York City, Goldman Sachs (NYSE: GS) is a global financial institution that provides investment banking, securities, asset management, and consumer banking services to corporations, governments, and individuals.
Why Does GS Worry Us?
- Annual sales growth of 2.5% over the last five years lagged behind its financials peers as its large revenue base made it difficult to generate incremental demand
- Earnings growth underperformed the sector average over the last five years as its EPS grew by just 3.1% annually
- Large asset base makes it harder to grow tangible book value per share quickly, and its annual tangible book value per share growth of 5.9% over the last two years was below our standards for the financials sector
Goldman Sachs is trading at $935.25 per share, or 15.9x forward P/E. Check out our free in-depth research report to learn more about why GS doesn’t pass our bar.
PROG (PRG)
Market Cap: $1.32 billion
Evolving from its origins as Aaron's, Inc. before rebranding in 2020, PROG Holdings (NYSE: PRG) provides alternative payment solutions including lease-to-own options and second-look credit products for consumers who may not qualify for traditional financing.
Why Is PRG Risky?
- Sales stagnated over the last five years and signal the need for new growth strategies
- Performance over the past five years shows each sale was less profitable, as its earnings per share fell by 5.4% annually
- Annual tangible book value per share declines of 62.4% for the past five years show its capital management struggled during this cycle
At $33.04 per share, PROG trades at 7.6x forward P/E. To fully understand why you should be careful with PRG, check out our full research report (it’s free).
One Financials Stock to Watch:
Nasdaq (NDAQ)
Market Cap: $52.02 billion
Originally founded in 1971 as the world's first electronic stock market, Nasdaq (NASDAQ: NDAQ) operates global exchanges and provides technology, data, and corporate services that help companies, investors, and financial institutions navigate capital markets.
Why Is NDAQ Interesting?
- Market share has increased this cycle as its 15% annual revenue growth over the last two years was exceptional
- Earnings per share grew by 14.8% annually over the last two years and topped the peer group average
- Market-beating return on equity illustrates that management has a knack for investing in profitable ventures
Nasdaq’s stock price of $92.32 implies a valuation ratio of 23x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
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