LoanDepot, Inc. (LDI), in Foothill Ranch, Calif., is a customer-centric and technology-enabled residential mortgage platform. In addition, its technology platform, mello, functions across all aspects of its business, including lead generation, origination, and data integration. In comparison, diversified consumer finance company CURO Group Holdings Corp. (CURO) offers unsecured installment loans, secured installment loans, open-end loans, and single-pay loans. CURO is based in Wichita, Kans.
Even though interest rates have been held near zero for an extended period, the financial sector rebounded significantly earlier this year as the economy gradually recovered on the back of solid progress on the COVID-19 vaccination front. In addition, following the Federal Reserve’s announcement yesterday, half of the United States Federal Reserve policymakers now expect to start raising interest rates next year, which should bode well for the financial sector. So, LDI and CURO could benefit.
LDI has declined 12.9% in price over the past month, while CURO has lost 1%. Also, in terms of the past six months’ performance, CURO is the clear winner with 9.5% gains versus LDI’s negative returns.
But which of these two stocks is a better buy now? Let’s find out.
Several law firms have launched investigations into LDI regarding alleged violations of federal securities laws. For example, it is alleged that the company made false and misleading statements to the market. In addition, its refinance originations were in decline at the time of the IPO due to competition, among other factors.
On June 9, CURO announced several benefits from the completion of the business combination between Katapult Holding, Inc. and FinServ Acquisition Corp. CURO’s CEO, Don Gayhardt, said, “We believe our investment in Katapult will allow CURO and its stakeholders to continue to participate in the rapidly growing U.S. e-commerce point-of-sale finance space.”
Recent Financial Results
LDI’s adjusted total revenue decreased 28.5% year-over-year to $825.33 million for the second quarter, ended June 30, 2021. The company’s adjusted net income decreased 88.3% year-over-year to $57.50 million, while its adjusted EPS declined 81.8% sequentially to $0.18. Also, its adjusted EBITDA came in at $109.26 million, compared to $682.59 million in the year-ago period.
For the second quarter ended, June 30, 2021, CURO’s net revenue increased 8.1% year-over-year to $142.53 million. However, while its adjusted net income decreased 21.5% year-over-year to $17.39 million, its adjusted EPS declined 24.5% year-over-year to $0.40. Also, its adjusted EBITDA decreased 1.6% year-over-year to $50.30 million.
Expected Financial Performance
LDI’s revenue is expected to decline 46.6% for the quarter ending December 31, 2021, and 10% in its fiscal year 2022. Also, its EPS is expected to decline 1.1% next year. In addition, its EPS is expected to decrease at a 14.7% rate per annum over the next five years.
In comparison, analysts expect CURO’s revenue to increase 14.4% for the quarter ending December 31, 2021, and 28.7% in its fiscal year 2022. In addition, the company’s EPS is expected to increase 63.3% in fiscal 2022. Also, its EPS is expected to grow at a 3.6% rate per annum over the next five years.
LDI’s $4.94 billion trailing-12-month revenue compares with CURO’s $768.33 million. Furthermore, LDI is more profitable, with a gross profit and net income margins of 94.48% and 41.85%, respectively, compared to CURO’s 73.7% and 19.21%.
In terms of trailing12-month P/S, CURO is currently trading at 0.84x, which is higher than LDI’s 0.18x. In addition, CURO’s 2.46x railing-12-month P/B ratio is 40.6% higher than LDI’s 1.75x.
Though CURO looks much more expensive than LDI, we think it’s worth paying this premium considering CURO’s significantly higher revenue and earnings growth potential.
LDI has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. In comparison, CURO has an overall B rating, which translates to a Buy. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
LDI has a C grade for Quality, which is in sync with 1.09% trailing-12-month CAPEX/Sales, which is lower than the 1.73% industry average. On the other hand, CURO has a B grade for Quality, which is consistent with its 1.74% trailing-12-month CAPEX/S, which is higher than the 1.73% industry average.
LDI has a C grade for Momentum, which is in sync with its 65.6% loss over the past six months, while CURO’s 9.5% gains over the past six months helped it earn a B grade for Momentum.
Moreover, LDI has a C grade for Sentiment, consistent with unfavorable analyst sentiment. CURO has a B grade for Sentiment.
Of the 51 stocks in the Consumer Financial Services industry, LDI is ranked #27 while CURO is ranked #4.
Because interest rates could be raised earlier than expected, the financial sector is expected to benefit significantly. So, while both LDI and CURO are expected to gain eventually, we think it could be wise to scoop up the shares of CURO now due to its better financials and significantly higher revenue and EPS growth estimates.
Our research shows that 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.
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CURO shares were unchanged in premarket trading Thursday. Year-to-date, CURO has gained 11.61%, versus a 18.97% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...
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