Financial providers use their expertise in capital allocation and risk assessment to help facilitate economic growth while offering consumers and businesses essential financial services. Still, investors are uneasy as companies face challenges from an unpredictable interest rate and inflation environment. These doubts have certainly contributed to the industry’s recent underperformance — over the past six months, its 1.4% gain has fallen behind the S&P 500’s 6.8% rise.
Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. On that note, here is one financials stock boasting a durable advantage and two we would avoid.
Two financials stocks to sell:
T. Rowe Price (TROW)
Market Cap: $22.23 billion
Founded in 1937 by Thomas Rowe Price Jr., who pioneered the growth stock investing approach, T. Rowe Price (NASDAQ: TROW) is an investment management firm that offers mutual funds, advisory services, and retirement planning solutions to individuals and institutions.
Why Do We Avoid TROW?
- Annual revenue growth of 1.5% over the last five years was below our standards for the financials sector
- Earnings per share fell by 2.5% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
T. Rowe Price’s stock price of $104.20 implies a valuation ratio of 10.2x forward P/E. If you’re considering TROW for your portfolio, see our FREE research report to learn more.
Nelnet (NNI)
Market Cap: $4.39 billion
Starting as a student loan servicer in the 1970s and evolving through the changing landscape of education finance, Nelnet (NYSE: NNI) provides student loan servicing, education technology, payment processing, and banking services while managing a portfolio of education loans.
Why Does NNI Worry Us?
- Annual revenue growth of 3.6% over the last five years was below our standards for the financials sector
- Earnings per share fell by 8.3% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
Nelnet is trading at $122.53 per share, or 15.3x forward P/E. Read our free research report to see why you should think twice about including NNI in your portfolio.
One financials stock to watch:
FirstCash (FCFS)
Market Cap: $7.49 billion
Offering a financial lifeline to the unbanked and credit-constrained since 1988, FirstCash (NASDAQ: FCFS) operates pawn stores across the U.S. and Latin America while also providing retail point-of-sale payment solutions for credit-constrained consumers.
Why Are We Fans of FCFS?
- Annual revenue growth of 21.9% over the last five years was superb and indicates its market share increased during this cycle
- Performance over the past two years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
- Stellar return on equity showcases management’s ability to surface highly profitable business ventures
At $173.29 per share, FirstCash trades at 15.1x forward P/E. Is now the right time to buy? See for yourself in our full research report, it’s free.
High-quality stocks for all market conditions
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