The demand for consumer finance is rising due to higher personal income levels and the growing need for credit. The consumer finance sector plays a crucial role in helping individuals manage personal expenses, invest in homes, or fund large purchases. With increasing consumer spending and access to digital banking platforms, the global finance market is seeing steady growth.
The global consumer finance market is expected to grow at a CAGR of 7.1% by 2033. The major upheaval came with the introduction of digital lending applications, which transformed the traditional loan system into a digital platform and enabled users to receive rapid gratification and customized services.
Against this backdrop, let’s compare two consumer finance stocks, FirstCash Holdings, Inc. (FCFS) and LM Funding America, Inc. (LMFA), to determine which consumer finance stock is stronger.
The Case for FirstCash Holdings, Inc. Stock
With a $5.09 billion market cap, FirstCash Holdings, Inc. (FCFS) operates retail pawn stores in the United States, Mexico, and the rest of Latin America. The company operates in three segments: U.S. Pawn; Latin America Pawn; and Retail POS Payment Solutions segments.
On August 8, 2024, FCFS announced that it had amended the terms of its long-term, unsecured bank credit facility to increase the size of the commitment to $700 million and extend the maturity date to August 2029.
FCFS’ stock has gained 7.6% over the past three months to close the last trading session at $113.63.
FCFS’ forward EV/Sales of 2.06x is 33.9% lower than the industry average of 3.12x. In terms of forward Price/Sales, it is trading at 1.50x, 47.2% lower than the industry average of 2.85x.
During the second quarter that ended June 30, 2024, FCFS’ non-GAAP revenue increased 10.7% year-over-year to $831.01 million. Its non-GAAP net income and EPS came in at $61.90 million and $1.37, up 11.4% and 12.3% from the prior year’s quarter, respectively. In addition, the company’s non-GAAP EBITDA of $121.88 million indicates an increase of 13.4% year-over-year.
Street expects FCFS’ revenue for the third quarter ending September 2024 to increase 5.8% year-over-year to $831.61 million. Its EPS is expected to grow 5.4% year-over-year to $1.64. Moreover, the company has surpassed EPS estimates in each of the trailing four quarters.
FCFS’ POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
FCFS has a B grade for Sentiment and Momentum. It is ranked #7 out of 46 stocks in the Consumer Financial Services industry.
Click here for the additional POWR Ratings for FCFS (Value, Growth, Stability, Sentiment, and Quality).
The Case for LM Funding America, Inc. Stock
Valued at $8.39 million by market cap, LM Funding America, Inc. (LMFA) operates as a cryptocurrency mining and specialty finance company. It operates through two segments: Specialty Finance and Mining Operations. The company also engages in Bitcoin mining operations and provides funding to nonprofit community associations.
LMFA’s stock has plunged 35.6% over the past three months to close the last trading session at $2.82.
In the fiscal second quarter that ended June 30, 2024, LMFA’s total revenues declined marginally year-over-year to $3.01 million, while its net loss increased 17.9% year-over-year to $6.65 million. The company’s loss per common share grew 17.3% year-over-year to $2.44
Analysts expect LMFA’s revenue for the third quarter (ending September 2024) to decrease 47.4% year-over-year to $1.80 million. The company’s EPS for the same quarter is expected to decline 18.9% year-over-year to $2.36.
LMFA’s bleak fundamentals are reflected in its POWR Ratings. It has an overall rating of D, equating to a Sell in our proprietary rating system.
The stock has an F grade for Stability and a D for Quality. Within the same industry, LMFA is ranked #43.
In addition to the POWR Ratings I’ve just highlighted, you can see LMFA’s ratings for Growth, Momentum, Value, and Sentiment here.
FirstCash Holdings (FCFS) vs. LM Funding (LMFA): Which Consumer Finance Stock Is Stronger?
Technological advancements and shifting consumer preferences are causing dynamic shifts in the consumer finance market. The way financial services are accessed and used is being completely transformed by digitalization, with a growing focus on mobile payments, online banking, and customized financial management tools.
Leading consumer finance companies FCFS and LMFA stand to capitalize on bright industry growth prospects. However, FCFS’ strong financial results and promising near-term outlook favor it as the better consumer finance stock pick.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Consumer Financial Services industry here.
What To Do Next?
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FCFS shares were trading at $114.67 per share on Thursday afternoon, up $1.04 (+0.92%). Year-to-date, FCFS has gained 6.77%, versus a 21.47% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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