Money3 Corporation Limited (ASX:MNY), a AU$356.05m small-cap, operates in the financial services industry, which now face the choice of either being disintermediated or proactively disrupting their own business models to thrive in the future. Many consumer finance firms, particularly the large, complex institutions, have been simplifying their business and operating models over the last few years, both for economic reasons and to reduce organizational complexity. Financial services analysts are forecasting for the entire industry, a strong double-digit growth of 11.70% in the upcoming year , and an enormous growth of 95.49% over the next couple of years. Not surprisingly, this rate is more than double the growth rate of the Australian stock market as a whole. Is the consumer finance industry an attractive sector-play right now? Below, I will examine the sector growth prospects, and also determine whether Money3 is a laggard or leader relative to its financial sector peers.
What’s the catalyst for Money3’s sector growth?
The threat of disintermediation in the consumer finance industry is both real and imminent, taking profits away from traditional incumbent financial institutions. In the previous year, the industry saw growth in the teens, beating the Australian market growth of 9.00%. Money3 leads the pack with its impressive earnings growth of 28.72% over the past year. However, analysts are not expecting this industry-beating trend to continue, with future growth expected to be 6.85% compared to the wider consumer finance sector growth hovering in the teens next year. This growth is a median of profitable companies of 6 Consumer Finance companies in AU including Scottish Pacific Group, Credit Corp Group and FSA Group. As a future industry laggard in growth, Money3 may be a cheaper stock relative to its peers.
Is Money3 and the sector relatively cheap?
The consumer finance sector’s PE is currently hovering around 16.07x, relatively similar to the rest of the Australian stock market PE of 17.36x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 12.71% on equities compared to the market’s 11.84%. On the stock-level, Money3 is trading at a lower PE ratio of 10.4x, making it cheaper than the average consumer finance stock. In terms of returns, Money3 generated 16.19% in the past year, which is 3.48% over the consumer finance sector.
Money3 is consumer finance industry laggard in terms of its future growth outlook. This is possibly reflected in the PE ratio, with the stock trading below its peers. If the stock has been on your watchlist for a while, now may be the time to dig deeper. Although the market is expecting lower growth for the company relative to its peers, Money3 is also trading at a discount, meaning that there could be some value from a potential mispricing. However, before you make a decision on the stock, I suggest you look at Money3’s fundamentals in order to build a holistic investment thesis.
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Historical Track Record: What has MNY’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Money3? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.