The consumer financial services sector thrives due to digital shift and rising demand for financial services. Companies benefit from resilient spending, income gains, digitalization, and high interest rates. Recent shifts to cloud and blockchain tech in finance have enabled AI and ML, enhancing automation, fraud detection, and customer support, improving efficiency and making the sector's prospects promising.
Amid this backdrop, it could be wise to buy fundamentally strong consumer financial stocks: Qifu Technology, Inc. (QFIN), Atlanticus Holdings Corporation (ATLC), and Regional Management Corp. (RM), which are trading at a discount. Before diving deeper into the fundamentals of these stocks, let’s discuss why the financial services industry is well-positioned for growth.
The financial sector's growth is driven by finance apps, internet access, advanced fintech, and supportive policies. Services like credit card processing, easy credit, insurance, tax accounting, wealth management, and BNPL are now digitized, transforming the industry and increasing demand from individuals, corporations, governments, and investors.
On top of it, regulatory changes drive innovation and competition, promoting the sector’s growth. Similarly, higher interest rates benefit the financial industry, boosting profit margins. The market is projected to grow to $33.31 trillion by 2026 and $45.15 trillion by 2031, at respective CAGRs of 7.4% and 6.3%.
Considering these conducive trends, let’s analyze the fundamental aspects of the three Consumer Financial Services picks, beginning with the third choice.
Stock #3: Qifu Technology, Inc. (QFIN)
Headquartered in Shanghai, the People's Republic of China, QFIN and its subsidiaries operate a credit-tech platform under the 360 Jietiao brand in the People's Republic of China. It provides credit-driven services and platform services.
In terms of forward non-GAAP P/E, QFIN’s 0.47x is 60.4% lower than the 1.18x industry average. Its 3.36x forward EV/EBITDA is 66.8% lower than the 10.13x industry average. In addition, its 3.38x forward EV/EBIT is 69.4% lower than the 11.07x industry average.
QFIN’s total net revenue for the first quarter which ended March 31, 2024, increased 15.4% year-over-year to RMB4.15 billion ($578.53 million). Its non-GAAP income from operations rose 33.7% over the prior-year quarter to RMB1.41 billion ($196.24 million).
For the same quarter, the company’s non-GAAP net income attributable to shareholders of QFIN and non-GAAP net income per ADS attributable to ordinary shareholders of QFIN came in at RMB1.21 ($168.40 million) and RMB7.58, respectively, up 23.3% and 28% year-over-year.
Analysts expect QFIN’s EPS for the fiscal 2024 to increase 12.5% year-over-year to $4.26. Its revenue for fiscal 2025 is expected to increase 8.1% year-over-year to $2.45 billion. QFIN’s stock has gained 36.5% over the past year to close the last trading session at $20.51.
QFIN’s positive outlook is reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #2 out of 44 stocks in the B-rated Consumer Financial Services industry. It has a B grade for Value, Sentiment, and Quality. To access QFIN’s grades for Growth, Momentum, and Stability, click here.
Stock #2: Atlanticus Holdings Corporation (ATLC)
ATLC is a financial technology company that provides credit and related financial services and products to customers in the United States. It operates in two segments: Credit as a Service and Auto Finance.
On April 17, 2024, ATLC announced a multi-year partnership between Fortiva Retail Credit and Byte to provide second-look financing for Byte's at-home clear aligners. This program aims to make oral healthcare more affordable and accessible for consumers.
In terms of forward Price/Sales, ATLC’s 0.30x is 88.6% lower than the 2.60x industry average. Similarly, its 0.76x forward Price/Book is 29.4% lower than the 1.08x industry average. Also, its 5.58x forward non-GAAP P/E is 48.4% lower than the 10.81x industry average.
For the first quarter that ended March 31, 2024, ATLC’s total revenue increased 11.4% year-over-year to $290.71 million. Its total operating revenue rose 11.2% over the prior year's quarter to $290.17 million. Additionally, the company’s net income attributable to common shareholders and net income attributable to common shareholders per common share stood at $19.88 million and $1.09, respectively.
For the quarter ending June 30, 2024, ATLC’s revenue is expected to increase 6.3% year-over-year to $309.03 million. Its EPS for the quarter ending September 30, 2024, is expected to increase 18.3% year-over-year to $1.22. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past month, the stock has gained 2.4% to close the last trading session at $24.93.
ATLC’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has a B grade for Value, Stability, and Quality. It is ranked #3 in the same industry. To see ATLC’s Growth, Momentum, and Sentiment ratings, click here.
Stock #1: Regional Management Corp. (RM)
RM is a diversified consumer finance company that provides various installment loan products primarily to customers with limited access to consumer credit from banks, thrifts, credit card companies, and other lenders in the United States.
In terms of forward non-GAAP P/E, RM’s 6.64x is 38.6% lower than the 10.81x industry average. Its 0.48x forward Price/Sales is 81.6% lower than the 2.60x industry average. Likewise, its 0.78x forward Price/Book is 27.5% lower than the 1.08x industry average.
For the fiscal first quarter that ended March 31, 2024, RM’s total revenue increased 6.6% year-over-year to $144.31 million. Its net income stood at $15.21 million, or $1.56 per common share, respectively, up 75% and 73.3% year-over-year. In addition, the company’s total assets of $1.76 billion indicate an increase of 3.3% from the previous year’s period.
Street expects RM’s revenue for the quarter ending June 30, 2024, to increase 6.9% year-over-year to $142.72 million. Its EPS for the quarter ending September 30, 2024, is expected to grow by 21.4% year-over-year to $1.11. It has surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past six months, the stock has gained 28.2% to close the last trading session at $28.37.
It’s no surprise that RM has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Value and a B for Stability, Sentiment, and Quality. Within the Consumer Financial Services industry, it is ranked first. Beyond what we stated above, we also have given RM grades for Growth, and Momentum. Get all the RM ratings here.
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QFIN shares were trading at $19.99 per share on Thursday afternoon, down $0.46 (-2.25%). Year-to-date, QFIN has gained 30.07%, versus a 11.78% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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