Enova International Inc (NYSE:ENVA), a US$1.26b 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 26.94% in the upcoming year , and a whopping growth of 60.06% over the next couple of years. This rate is larger than the growth rate of the US stock market as a whole. Is now the right time to pick up some shares in consumer finance companies? Below, I will examine the sector growth prospects, as well as evaluate whether Enova International is lagging or leading its competitors in the industry.
What’s the catalyst for Enova International’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 US market growth of 13.70%. Enova International lags the pack with its lower growth rate of 12.17% over the past year, which indicates the company has been growing at a slower pace than its consumer finance peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of 88.32% in the upcoming year. This future growth may make Enova International a more expensive stock relative to its peers.
Is Enova International and the sector relatively cheap?
The consumer finance industry is trading at a PE ratio of 14.55x, in-line with the US stock market PE of 18.4x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. Furthermore, the industry returned a similar 12.82% on equities compared to the market’s 11.14%. On the stock-level, Enova International is trading at a higher PE ratio of 29.3x, making it more expensive than the average consumer finance stock. In terms of returns, Enova International generated 13.71% in the past year, in-line with its industry average.
Enova International’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 Enova International 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 consumer finance companies. However, before you make a decision on the stock, I suggest you look at Enova International’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 ENVA’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 Enova International? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!