The hedge fund industry and some trading desks at the big investment banks are usually mystified for always knowing where and when to be. Most of what they do is obscure, but the little that has come to light can easily be adopted by retail traders and investors today. To go through one example, today's breakout stock in the financial sector offers just that.
Shares of Triumph Financial Inc. (NASDAQ: TFIN) have recently broken out to a new 52-week high, and there is significant evidence that this recent rally might be only the beginning. Connecting the dots, the transportation sector has recently achieved similar bullish price action, not to mention fundamental breakouts in both the services and the manufacturing PMI indexes.
Given that Triumph Financial offers solutions and services to the freight and logistics industry, connecting the dots to both breakouts is part of the main strategy utilized by these hedge funds and trading desks. While some on Wall Street have yet to reflect the potential upside in this name, other agents, like institutional buyers, did justify jumping in earlier in the trend by allocating some capital recently.
What Triumph Financial Stock’s Quarter Reveals About Its Momentum and Growth Potential
The past quarter started out on an alarming note, as management quoted that the freight and logistics industry is now in a 33-month recession, but that could soon be about to change. The days after the United States presidential election showed markets that transportation stocks led the way in price action.
This price action sends a very clear message that rhymes with the industry dominating the market’s view for the coming months. Within this trend in manufacturing expansion potential, three stocks led the way specifically in terms of upside, which might have sparked the rally in Triumph Financial.
Moving on from the management statement, plenty of other tailwinds are present for the stock. One of them is the investment in technology and efficiencies, where Triumph management wants to expand its factoring as a service (FaaS) to achieve up to $1 billion in revenue from this platform.
Now, despite credit markets being one of the main tailwinds in Triumph’s business model, the company still managed to deliver strong results, as shown by the $0.19 in earnings per share (EPS), which was more than double the $0.08 generated 12 months prior.
More than EPS, management reports up to 43% in compounded annual growth rates for revenue over the past 2 years, showing signs of potential recovery from the previously stated recession in the freight and logistics space. To speak of the future, investors can see more than $10 billion in accounts receivables acquired over the past year.
Keeping in mind that Triumph is the second-largest transportation factor in North America, it would be safe to assume that most of these $10 billion in accounts will be collected. Which is also why some have started to buy the stock.
Why Institutional Investors Are Turning to Triumph Financial Stock Now
Over the past 12 months, up to $231.9 million of institutional capital has entered Triumph Financial stock. However, as of November 2024, Geode Capital Management decided to boost its holdings in Triumph Financial stock by as much as 1.7%.
This may not seem like much on a percentage basis, but it did bring their net allocation to a high of $41.2 million today, or 2.2% ownership in the company. For these fundamental reasons and all the momentum building up in the financial and transportation sector, broader markets are also willing to pay up for this stock.
There’s a reason why Triumph Financial stock trades at a 137.3x price-to-earnings (P/E) ratio today, which is significantly above the financial sector’s 45.5x average valuation today. Now, some might call this expensive, but markets typically have a good reason to overpay for a stock when they see significant upside ahead.
In Triumph's case, one path to this upside is the fact that interest rates are changing for the better. With the Federal Reserve (the Fed) lowering interest rates, the harsh credit situation—and headwind—that Triumph management quoted might soon be over.
When credit loosens up and these accounts receivable turn into revenue and earnings, then the upside potential perceived by institutional investors might become a reality, so the 17.5% rally over the past month might seem small compared to what the rest of the year might bring.
