Financial firms serve as the backbone of the economy, providing essential services from lending and investment management to risk management and payment processing. But worries about economic uncertainty and potential market volatility have kept sentiment in check, and over the past six months, the industry has tumbled by 3.7%. This performance was disappointing since the S&P 500 climbed 6.3%.
While some firms have strong balance sheets and diversified revenue streams that enable them to thrive in any environment, the odds aren’t great for the ones we’re analyzing today. Taking that into account, here are three financials stocks we’re passing on.
Capital One (COF)
Market Cap: $112.1 billion
Starting as a credit card company in 1988 before expanding into a full-service bank, Capital One (NYSE: COF) is a financial services company that offers credit cards, auto loans, banking services, and commercial lending to consumers and businesses.
Why Are We Wary of COF?
- Annual earnings per share growth of 4.6% underperformed its revenue over the last five years, showing its incremental sales were less profitable
- Sizable asset base leads to capital growth challenges as its 1.4% annual tangible book value per share increases over the last two years fell short of other financials companies
- Low return on equity reflects management’s struggle to allocate funds effectively
Capital One is trading at $200.85 per share, or 9.6x forward P/E. Read our free research report to see why you should think twice about including COF in your portfolio.
WEX (WEX)
Market Cap: $4.73 billion
Originally founded in 1983 as Wright Express to serve the fleet card market, WEX (NYSE: WEX) provides payment processing and business solutions across fleet management, employee benefits, and corporate payments sectors.
Why Are We Hesitant About WEX?
- Muted 2.1% annual revenue growth over the last two years shows its demand lagged behind its financials peers
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 6% annually
At $132.91 per share, WEX trades at 6.6x forward P/E. Dive into our free research report to see why there are better opportunities than WEX.
Western Union (WU)
Market Cap: $2.29 billion
With a history dating back to 1851 when it began as a telegraph company, Western Union (NYSE: WU) is a global money transfer service that enables consumers and businesses to send funds across borders and currencies, typically within minutes.
Why Should You Sell WU?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 2.8% annually over the last five years
- Earnings per share have dipped by 3.2% annually over the past five years, which is concerning because stock prices follow EPS over the long term
Western Union’s stock price of $7.22 implies a valuation ratio of 3.7x forward P/E. If you’re considering WU for your portfolio, see our FREE research report to learn more.
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