One of the world’s leading digital payments companies, San Jose, Calif-based PayPal Holdings, Inc.’s (PYPL) shares have gained 37.2% in price over the past year to close yesterday’s trading session at $286.75. It is currently trading 7.5% below its 52-week high of $310.16, which it hit on July 26, 2021. However, the company is facing a class-action lawsuit that alleges violations of the Securities Exchange Act of 1934. It is alleged that its PayPal Credit business was non-compliant with applicable laws and regulations.
Also, PYPL’s 48.43% and 0.35% respective trailing-12-month gross profit margin and asset turnover ratio are lower than the 49.04% and 0.65% industry averages. The stock is also currently trading at an expensive valuation. In terms of forward EV/S ratio, PYPL’s 13.07x is 210% higher than the 4.22x industry average. In addition, the stock’s 13.09x forward P/S is 215.3% higher than the 4.15x industry average. So, it could be wise to wait for a better entry point in the stock.
However, rapid technological innovations and the recovering economy are driving the growth of the credit services sector. Also, the Federal Reserve could raise interest rates as early as 2023 and recently indicated its willingness to reduce asset purchases before the end of the year, which should help credit services companies generate better interest income.
So, instead of betting on PYPL now, we think it could be wise to bet on shares of quality credit services companies Visa Inc. (V), OneMain Holdings, Inc. (OMF), World Acceptance Corporation (WRLD), and Atlanticus Holdings Corporation (ATLC). These companies are well-positioned to capitalize on the industry tailwinds.
Visa Inc. (V)
Payments technology company V in Foster City, Calif., facilitates digital payments among consumers, merchants, financial institutions, businesses, strategic partners, and government entities. It operates VisaNet, a transaction processing network that enables authorization, clearing, and settlement of payment transactions.
On July 22, 2021, V announced that it had signed a definitive agreement to acquire Currencycloud. The company’s Global Treasurer, Colleen Ostrowski, said, “With our acquisition of Currencycloud, we can support our clients and partners to further reduce the pain points of cross-border payments and develop great user experiences for their customers.”
V’s net revenue increased 27% year-over-year to $6.10 billion for its fiscal third quarter, ended June 30, 2021. The company’s non-GAAP operating income grew 35% year-over-year to $4.08 billion, while its non-GAAP net income increased 39% year-over-year to $3.30 billion. Also, its non-GAAP EPS came in at $1.49, up 41% year-over-year.
For the current quarter, ending September 30, 2021, analysts expect V’s EPS and revenue to increase 37.5% and 27.9%, respectively, year-over-year to $1.54 and $6.53 billion. In addition, it surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 9% in price to close yesterday’s trading session at $230.12.
V’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has a B grade for Quality, Stability, Sentiment, and Momentum. Within the Consumer Financial Services industry, V is ranked #5 of 51 stocks. To see the additional POWR Ratings for V (Value and Growth), click here.
OneMain Holdings, Inc. (OMF)
Financial services holding company OMF is in the consumer finance and insurance businesses. The Evansville, Ind.-based company operates through a network of roughly 1,500 branch offices in 44 states across the United States and its website—onemain financial.com. Its segments include Consumer and Insurance; Acquisitions and Servicing; Real Estate; and Others.
In April, OMF agreed to acquire Trim, a customer-focused financial wellness fintech. The acquisition is expected to help it expand its product and services portfolio and work towards its vision of providing solutions that enable a better future for consumers.
The company’s net interest income increased 158.4% year-over-year to $708 million for its fiscal first quarter, ended June 30, 2021. Its total other revenues grew 64.8% sequentially to $150 million. Its net income increased 293.2% year-over-year to $350 million. Also, its EPS came in at $2.60, up 293.9% year-over-year.
OMF’s EPS is expected to increase 75.8% year-over-year to $10.67 in fiscal 2021. It surpassed the Street’s EPS estimates in each of the trailing four quarters. The company’s revenue is expected to increase 10.2% year-over-year to $3.89 billion in its fiscal year 2022. The stock has gained nearly 95.1% in price over the past year to close yesterday’s trading session at $56.85.
It’s no surprise that OMF has an overall B rating, which equates to a Buy in our POWR Rating system. The stock also has a B grade for Momentum, Value, and Quality.
World Acceptance Corporation (WRLD)
WRLD is in a small-loan consumer finance business that operates 1,243 branches. The Greenville, S.C.-based company offers short-term small installment loans, medium-term larger installment loans, related credit insurance, and ancillary products and services. In addition, it provides automobile club memberships to its borrowers and income tax return preparation and electronic filing services.
WRLD’s total revenues increased 4.7% year-over-year to $129.70 million in its fiscal first quarter, ended June 30, 2021. Its total assets grew 13.4% year-over-year to $1.02 billion. Its gross loans receivables were $1.22 billion, representing a 14.5% year-over-year increase. Its EPS increased 8.9% from the same period last year to $2.44.
The company’s EPS is expected to increase 15.3% year-over-year to $2.26 for the current quarter, ending September 30, 2021. In addition, WRLD surpassed the consensus EPS estimates in each of the trailing four quarters. Its revenue is expected to increase 9.1% year-over-year to $573.52 million in fiscal 2022. The stock has surged 102.3% in price over the past year to close yesterday’s trading session at $191.49.
WRLD’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to a Buy in our proprietary rating system.
It has an A grade for Quality, and a B grade for Momentum. We have also graded WRLD for Growth, Sentiment, Value, and Stability. Click here to access all WRLD’s ratings. WRLD is ranked #7 in the Consumer Financial Services industry.
Atlanticus Holdings Corporation (ATLC)
Operating through two segments—Credit and Other Investments and Auto Finance—ATLC provides credit and related financial services and products. Its Credit and Other Investments segment originate a range of consumer loan products, while its Auto Finance segment purchases and/or services loans secured by automobiles. ATLC is headquartered in Atlanta, Ga.
ATLC’s total revenue increased 34.2% year-over-year to $182.10 million for its fiscal second quarter, ended June 30, 2021. Its total assets grew 17.6% sequentially to $ 1.42 billion. Its net income increased 74.4% year-over-year to $32.10 million. Also, its EPS increased 67.7% year-over-year to $1.56.
Analysts expect ATLC’s EPS and revenue to increase 21.1% and 28.4%, respectively, year-over-year to $8.90 and $871.19 million in fiscal 2022. In addition, the stock has gained 537.4% in price over the past year to close yesterday’s trading session at $60.49.
ATLC’s POWR Ratings reflect solid prospects. The company has an overall rating of B, which translates to a Buy in our proprietary rating system. In addition, it has an A grade for Sentiment and Quality, and a B grade for Momentum.
Click here to see the additional POWR Ratings for ATLC (Value, Growth, and Stability). ATLC is ranked #4 in the Consumer Financial Services industry.
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V shares were trading at $224.39 per share on Thursday morning, down $5.73 (-2.49%). Year-to-date, V has gained 3.04%, versus a 22.10% 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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