The consumer financial services sector stands poised for considerable growth, driven by the increase in easily accessible digital financial offerings, an upswing in consumer spending, and escalating demand for financial services. This sector also thrives in the high-interest-rate environment, leading to widened profit margins. Financial firms are thereby in a promising position to harness these opportunities.
Given this backdrop, fundamentally sound consumer finance stocks FirstCash Holdings, Inc. (FCFS), Qifu Technology, Inc. (QFIN), and Noah Holdings Limited (NOAH) could be solid portfolio additions now.
The Federal Reserve has escalated the federal funds rate to its maximum in over two decades since March 2022, with rates currently set between 5.25%-5.5%. Despite projections of rate cuts, it seems unlikely they will happen anytime soon, thus keeping rates elevated for some more months.
There's a positive correlation between the rising interest rates and revenues within the financial services industry. The prevailing high-interest climate mandates borrowers to contend with increased interest payments – a factor that could potentially enhance revenue generation for service providers in this sector.
The financial services sector holds a crucial position in driving the economic engine, and it promises to sustain its buoyancy in all future scenarios. This steadfast expansion can be traced back to the escalating affluence of high-net-worth individuals (HNIs), a surge in demand for alternative forms of investments, and a noticeable growth in homeownership and associated mortgage activities.
The consumer finance services encompass an extensive range of services, migrating from traditional banking products like savings and checking accounts to loans, credit cards, insurance policies, investment solutions, and versatile payment services.
Consumers are expecting financial services to be seamless and convenient, compelling financial institutions to prioritize the development of user-focused interfaces, personalized service offerings, and expedited transaction processing. In response, financial institutions are harnessing advanced technology to propose innovative solutions like robo-advisors and digital payment systems.
The shifting trend toward digital payments and online transactions presents significant growth opportunities for consumer finance companies. Furthermore, technical innovations like AI, GenAI, blockchain, cloud computing, the Internet of Things (IoT), mobile banking, and big data analytics are molding the competitive contours of the financial industry.
Consequently, the global consumer finance market is expected to reach $1.96 trillion by 2029, growing at a CAGR of 7.1%.
In light of these encouraging trends, let's look at the fundamentals of the three consumer financial services stocks.
FirstCash Holdings, Inc. (FCFS)
FCFS operates retail pawn stores, extending loans secured by pledged personal property like jewelry, electronics, tools, and more. The company also sells merchandise obtained through forfeited pawn loans and directly from customers, offering a diverse range of items through its retail outlets.
On November 30, 2023, FCFS paid to stockholders a $0.35 per share fourth quarter cash dividend. Its annualized dividend of $1.40 per share translates to a dividend yield of 1.20% on the current share price. Its four-year average yield is 1.52%. FCFS’ dividend payments have grown at CAGRs of 8% and 3.8% over the past three and five years, respectively.
In addition, the company repurchased 95,000 shares of common stock during the third quarter at an aggregate cost of $9 million and an average cost per share of $92.79. For the nine months that ended September 30, 2023, the company repurchased 1.25 million shares of common stock at an aggregate cost of $114 million and an average cost per share of $91.58.
FCFS’ trailing-12-month asset turnover ratio of 0.76x is 263% higher than the industry average of 0.21x. Its trailing-12-month ROCE and ROTA of 12.34% and 5.50% are 14.3% and 401.3% higher than the industry averages of 10.80% and 1.10%, respectively.
Over the past three and five years, its revenue grew at CAGRs of 20.6% and 11.4%, respectively, while its levered free cash flow grew at 13% and 19.4% CAGRs over the same periods.
For the fiscal third quarter that ended September 30, 2023, FCFS’ total revenue and adjusted EBITDA increased 17% and 22.2% year-over-year to $786.30 million and $132.99 million, respectively. Moreover, its adjusted free cash flow stood at $5.12 million.
For the same quarter, its adjusted net income and adjusted earnings per share stood at $70.78 million and $1.56, up 15.9% and 20% from the prior-year quarter, respectively.
Street expects FCFS’ revenue and EPS for the fiscal first quarter ending March 2024 to increase 9.3% and 28.3% year-over-year to $833.35 million and $1.60, respectively. The company surpassed consensus EPS estimates in each of the trailing four quarters and consensus revenue estimates in three of the trailing four quarters, which is impressive.
The stock has gained 28.7% over the past year to close the last trading session at $116.54. Over the past six months, it has gained 22.1%.
FCFS’ robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a B grade for Momentum and Stability. It is ranked #11 out of 46 stocks within the B-rated Consumer Financial Services industry.
Click here for the additional POWR Ratings for FCFS (Growth, Value, Sentiment, and Quality).
Qifu Technology, Inc. (QFIN)
Headquartered in Shanghai, the People’s Republic of China, QFIN operates a credit-tech platform under the 360 Jietiao brand. It offers credit-driven and platform services such as loan facilitation and post-facilitation services to financial institution partners. Also, it provides e-commerce loans, enterprise loans, and invoice loans to SME owners.
On June 20, 2023, QFIN’s Board of Directors approved a share repurchase plan, under which the company may repurchase up to $150 million worth of its ADS or Class A ordinary shares over the next 12 months beginning June 20, 2023. The new share repurchase program demonstrates the company’s confidence in its business outlook and reflects its commitment to boosting long-term shareholder value.
QFIN pays an annual dividend of $0.82 per share, which translates to a dividend yield of 5.80% on the current share price. Its four-year average yield is 2.21%.
QFIN’s trailing-12-month cash from operations of $898.38 million is 526.3% higher than the industry average of $143.45 million. Its trailing-12-month EBIT and EBITDA margins of 50.02% and 50.56% are 140.4% and 135.5% higher than the industry averages of 20.81% and 21.47%, respectively.
Over the past three and five years, its revenue grew at CAGRs of 7.5% and 34.3%, respectively, while its total assets grew at 23.9% and 55.8% CAGRs over the same periods.
QFIN’s net revenue increased 3.3% year-over-year to $586.76 million for the fiscal third quarter that ended September 30, 2023. Its non-GAAP income from operations grew 18.6% year-over-year to $196.29 million.
Non-GAAP net income attributable to shareholders of QFIN was $162.46 million, up 13.7% from the prior year’s period. Its non-GAAP net income per ADS attributable to ordinary shareholders of QFIN came in at $0.99, an increase of 11.1% year-over-year.
Analysts expect QFIN’s revenue for the fourth quarter of 2023 (ended December 2023) to increase 5.9% year-over-year to $594.12 million. For the fiscal year ending December 2024, the company’s revenue and EPS are expected to grow 12.7% and 14.2% year-over-year to $2.52 billion and $4.29, respectively.
The stock has declined 3.6% intraday to close the last trading session at $14.14.
QFIN’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
QFIN has a B grade for Value, Momentum, and Quality. Within the Consumer Financial Services industry, it is ranked #2.
Beyond what we’ve stated above, we have also rated the stock for Growth, Stability, and Sentiment. Get all ratings of QFIN here.
Noah Holdings Limited (NOAH)
Headquartered in Shanghai, the People's Republic of China, NOAH operates as a wealth and asset management service provider with a focus on investment and asset allocation services for high-net-worth individuals and enterprises in Mainland China, Hong Kong, and internationally. It operates through three segments: Wealth Management, Asset Management, and Other Businesses.
Its annualized dividend of $0.38 per share translates to a dividend yield of 3.21% on the current share price. Its four-year average yield is 0.44%.
NOAH’s trailing-12-month asset turnover ratio of 0.28x is 34.2% higher than the industry average of 0.21x. Its trailing-12-month ROTC and ROTA of 6.90% and 7.39% are 7% and 572.7% higher than the industry averages of 6.44% and 1.10%, respectively.
Over the past three and five years, its EBITDA grew at CAGRs of 2.7% and 4.7%, respectively, while its total assets grew at 10.6% and 11.7% CAGRs over the same periods.
For the fiscal third quarter that ended September 30, 2023, NOAH’s net revenues and income from operations increased 9.6% and 7.4% year-over-year to RMB749.96 million ($104.69 million) and RMB248.89 ($34.74 million), respectively.
For the same quarter, its adjusted net income attributable to NOAH shareholders and non-GAAP net income attributable to NOAH shareholders per ADS stood at RMB232.45 million ($32.45 million) and RMB3.35, up 21.8% and 21.4% from the prior-year quarter, respectively.
As of September 30, 2023, NOAH’s total current assets stood at RMB6.88 billion ($960.27 million), compared to RMB6.83 billion ($954.15 million) as of June 30, 2023.
Street expects NOAH’s revenue and EPS for the fiscal year of 2024 (ending December 2024) to increase 14.3% and 19.6% year-over-year to $542.91 million and $2.50, respectively. The company surpassed consensus EPS estimates in each of the trailing four quarters.
The stock has gained marginally over the past three months to close the last trading session at $11.94.
NOAH’s POWR Ratings reflect its positive prospects. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
NOAH has a B grade for Value, Momentum, Sentiment, and Quality. Within the A-rated Foreign Consumer Finance industry, it is ranked #2 out of 9 stocks.
To see additional POWR Ratings for Growth and Stability for NOAH, click here.
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FCFS shares were unchanged in premarket trading Tuesday. Year-to-date, FCFS has gained 7.52%, versus a 3.36% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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