The Fintech industry has immense growth potential over the long term due to the increasing adoption of advanced technologies for digital transactions. According to The Express Wire report, the Fintech market is expected to grow at an 8.6% CAGR over the next three years.
However, concerns related to data security have been dampening the industry’s growth. With increasing cyberattacks, consumers are wary of using fintech solutions, especially since they typically involve confidential information. Investors’ pessimism toward fintech stocks is evident in Global X FinTech ETF’s (FINX) 2.5% loss over the past month versus the SPDR S&P 500 Trust ETF’s (SPY) 3.9% returns.
So, even though the long-term prospects for the fintech industry look promising, some fundamentally weak companies that are trading at lofty valuations could witness a price pullback in the near term. Wall Street analysts expect FactSet Research Systems Inc. (FDS) and Lemonade, Inc. (LMND) to continue declining in the near term. So, these two stocks are best avoided now.
FactSet Research Systems Inc. (FDS)
FDS in Norwalk, Conn., provides integrated financial information and analytical applications to deliver insight and information through the workflow solutions of research, analytics and trading, content and technology solutions, and wealth. It serves a range of financial professionals, including portfolio managers, investment bankers, wealth advisors, and corporate clients.
FDS’ adjusted operating income decreased 5.2% year-over-year to $126.46 million in its fiscal third quarter, ended May 31, 2021. Its free cash flow decreased 13.1% year-over-year to $121.66 million. Its adjusted net income came in at $104.81 million, which represents a 4.8% year-over-year decrease. The company’s adjusted EPS was $2.72, down 4.9% year-over-year.
In terms of forward P/B, FDS’ 12.21x is 990% higher than the industry average of 1.12x. In terms of forward non-GAAP PEGl, the stock’s 4.34x is 349.4% higher than the 0.97x industry average.
Analysts expect FDS’ EPS to come in at $2.73 for the current quarter, ending August 31, 2021, representing a 5.2% year-over-year decrease. The stock has lost 4.3% over the past year to close yesterday’s trading session at $339.93. Wall Street analysts expect the stock to hit $321.33 in the near term, indicating a potential 5.5% decline.
FDS’ weak fundamentals are reflected in its POWR Ratings. The POWR Ratings assess stocks by 118 different factors, each with its own weighting. It has a D grade for Growth.
Lemonade, Inc. (LMND)
LMND provides various insurance products in the United States and Europe, covering stolen or damaged property and personal liability. The company also offers renters, homeowners, and pet insurance, life insurance products, and landlord insurance policies.
The company’s revenue decreased 10.3% year-over-year to $23.50 million for the first quarter, ended March 31, 2021. Its gross profit decreased 58.7% year-over-year to $1.90 million, while its net loss increased 34.2% year-over-year to $49 million. Also, its total liabilities came in at $333.80 million, up 16% year-over-year.
In terms of forward EV/S, LMND’s 34.84x is significantly higher than the 2.88x industry average.
LMND’s EPS is expected to decrease 56.1% for the quarter ending September 30, 2021 and remain negative in its fiscal years 2021 and 2022. The company’s revenue is expected to decline 10.4% year-over-year to $26.80 million for the quarter ended June 30, 2021. Over the past six months, the stock has retreated 40.4% to close yesterday’s trading session at $86.59. In addition, Wall Street analysts expect the stock to hit $65.80 in the near term, indicating a potential 24% decline.
LMND’s poor prospects are apparent in its POWR Ratings also. The stock has an overall F rating, which equates to Strong Sell in our proprietary rating system.
It has an F grade for Value and Sentiment, and a D grade for Growth, Momentum, Stability, and Quality. Click here to see all the POWR ratings for LMND. It is ranked last of 56 stocks in the Insurance – Property & Casualty industry.
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FDS shares were trading at $341.84 per share on Wednesday afternoon, up $1.91 (+0.56%). Year-to-date, FDS has gained 3.33%, versus a 16.81% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...
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