Medallion Financial Corp (NASDAQ:MFIN), a US$91.89M small-cap, is a capital market firm operating in an industry, which has recently been facing serious existential threats resulting from potential disintermediation and disruption from new technology. Many banks and capital markets 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 positive double-digit growth of 14.32% in the upcoming year , and a massive growth of 39.59% over the next couple of years. This rate is larger than the growth rate of the US stock market as a whole. An interesting question to explore is whether we can we benefit from entering into the capital markets sector right now. Below, I will examine the sector growth prospects, and also determine whether Medallion Financial is a laggard or leader relative to its financial sector peers. View our latest analysis for Medallion Financial
What’s the catalyst for Medallion Financial’s sector growth?
The threat of disintermediation in the capital markets 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 US market growth of 13.53%. Medallion Financial lags the pack with its negative growth rate of -98.81% over the past year, which indicates the company will be growing at a slower pace than its capital markets peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of over 100% in the upcoming year. This future growth may make Medallion Financial a more expensive stock relative to its peers.
Is Medallion Financial and the sector relatively cheap?
The capital markets industry is trading at a PE ratio of 16.07x, in-line with the US stock market PE of 18.29x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a higher 14.21% compared to the market’s 11.16%, potentially illustrative of past tailwinds. On the stock-level, Medallion Financial is trading at a higher PE ratio of 342x, making it more expensive than the average capital markets stock. In terms of returns, Medallion Financial generated 0.097% in the past year, which is 14.11% below the capital markets sector.
Next Steps:Medallion Financial’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. However, this higher growth prospect is also reflected in the company’s price, suggested by its higher PE ratio relative to its peers. If Medallion Financial has been on your watchlist for a while, now may not be the best time to enter into the stock since it is trading at a higher valuation compared to other capital markets companies. However, before you make a decision on the stock, I suggest you look at Medallion Financial’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 MFIN’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 Medallion Financial? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!