Financial institutions play a critical role, offering everything from consumer banking to wealth management and specialized financial solutions. But uncertainty about fiscal and monetary policy has tempered enthusiasm, and over the past six months, the industry has pulled back by 10.7%. This performance was worse than the S&P 500’s 1.3% fall.
Despite the lackluster result, a few diamonds in the rough can produce earnings growth no matter what, and we started StockStory to help you find them. With that said, here is one financials stock boasting a durable advantage and two we’re swiping left on.
Two Financials Stocks to Sell:
Bread Financial (BFH)
Market Cap: $3.24 billion
Formerly known as Alliance Data Systems until its 2022 rebranding, Bread Financial (NYSE: BFH) provides credit cards, installment loans, and savings products to consumers while powering branded payment solutions for retailers and merchants.
Why Do We Pass on BFH?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 5.3% annually over the last two years
- Sales were less profitable over the last two years as its earnings per share fell by 9.2% annually, worse than its revenue declines
Bread Financial’s stock price of $75.14 implies a valuation ratio of 7.4x forward P/E. Dive into our free research report to see why there are better opportunities than BFH.
Encore Capital Group (ECPG)
Market Cap: $1.52 billion
Operating in the often misunderstood world of debt collection since 1999, Encore Capital Group (NASDAQ: ECPG) purchases portfolios of defaulted consumer debt at deep discounts and works with individuals to recover these obligations while helping them toward financial recovery.
Why Does ECPG Give Us Pause?
- Annual revenue growth of 3.3% over the last five years was below our standards for the financials sector
- Below-average return on equity indicates management struggled to find compelling investment opportunities
- 6× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
At $70.85 per share, Encore Capital Group trades at 6x forward P/E. To fully understand why you should be careful with ECPG, check out our full research report (it’s free).
One Financials Stock to Buy:
Charles Schwab (SCHW)
Market Cap: $166.4 billion
Founded in 1971 as a disruptive force challenging Wall Street's high fees and limited access, Charles Schwab (NYSE: SCHW) is a wealth management and brokerage firm that provides investment services, banking, and financial advice to individual investors and independent advisors.
Why Are We Backing SCHW?
- Market share has increased this cycle as its 15.4% annual revenue growth over the last five years was exceptional
- Share buybacks catapulted its annual earnings per share growth to 24.9%, which outperformed its revenue gains over the last two years
- Industry-leading 14.4% return on equity demonstrates management’s skill in finding high-return investments
Charles Schwab is trading at $95.05 per share, or 16.3x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.
