Financial service companies’ profitability tends to be tied to the economic cycle, mainly because these businesses provide services such as consumer financing and investment banking, which tend to do well when times are good. Currently, Sachem Capital and Dunxin Financial Holdings are financial companies I’ve identified as potentially undervalued, meaning their share price is below what these companies are actually worth. There’s a few ways you can determine how much a financial company is actually worth. The most popular methods include discounting the company’s cash flows it is expected to create in the future, or comparing its price to its peers or the value of its assets. The discrepancy between the price and value means investors have an opportunity to buy shares at a discount. Below are the stocks I believe are undervalued on all criteria, based on their latest financial data.
Sachem Capital Corp. (AMEX:SACH)
Sachem Capital Corp. operates as a real estate finance company. The company was established in 2010 and with the company’s market cap sitting at USD $52.88M, it falls under the small-cap category.
SACH’s stock is now floating at around -28% below its actual worth of $4.72, at the market price of US$3.38, according to my discounted cash flow model. The divergence signals an opportunity to buy SACH shares at a low price. Also, SACH’s PE ratio is currently around 8.83x while its Mortgage peer level trades at, 22.56x indicating that relative to its competitors, you can buy SACH’s shares at a cheaper price. SACH is also strong financially, with current assets covering liabilities in the near term and over the long run. Interested in Sachem Capital? Find out more here.
Dunxin Financial Holdings Limited (AMEX:DXF)
Dunxin Financial Holdings Limited engages in the microfinance lending business in Hubei, China. The company currently employs 31 people and has a market cap of USD $115.52M, putting it in the small-cap group.
DXF’s shares are now hovering at around -34% under its intrinsic level of $8.65, at a price tag of US$5.72, according to my discounted cash flow model. This mismatch signals an opportunity to buy DXF shares at a discount. Also, DXF’s PE ratio stands at 5.82x compared to its Diversified Financial peer level of, 12.76x meaning that relative to its comparable set of companies, we can buy DXF’s stock at a cheaper price today. DXF is also robust in terms of financial health, with current assets covering liabilities in the near term and over the long run. Dig deeper into Dunxin Financial Holdings here.
Ellington Financial LLC (NYSE:EFC)
Ellington Financial LLC, through its subsidiary Ellington Financial Operating Partnership LLC, operates as a specialty finance company in the United States. Ellington Financial was started in 2007 and with the stock’s market cap sitting at USD $455.11M, it comes under the small-cap group.
EFC’s shares are now floating at around 109% under its intrinsic value of $7.12, at a price tag of US$14.85, according to my discounted cash flow model. This mismatch indicates a potential opportunity to buy low. Moreover, EFC’s PE ratio is trading at 14.22x while its Capital Markets peer level trades at, 16.76x suggesting that relative to its comparable company group, EFC’s stock can be bought at a cheaper price. EFC also has a healthy balance sheet, as short-term assets amply cover upcoming and long-term liabilities. More on Ellington Financial here.
For more financially sound, undervalued companies to add to your portfolio, explore this interactive list of undervalued stocks.