EFX or GDOT: Which Financial Services Stock Should You Hold?
The financial services industry has transformed significantly in the recent years. With digitalization taking center stage, technology is playing a major role. Digitalization of banking and payment services has made it easier for people to conduct transactions.
Meanwhile, coronavirus-led lockdowns have increased people’s dependency on online platforms and online transaction methods, which has turned out to be a positive for the industry. With the market adopting a quantitative approach to save time, reduce operating expenses and increase work efficiency, companies in this industry should benefit. The Zacks Financial Transaction Services industry currently carries a Zacks Industry Rank #104, which places it in the top 41% of more than 250 Zacks industries and indicates solid near-term growth prospects.
Given this encouraging backdrop, it is not a bad idea to undertake a comparative analysis of two financial transaction services industry stocks — Equifax, Inc. EFX and Green Dot Corporation GDOT. Both the stocks are part of the broader Zacks Business Services sector (one of the 16 Zacks sectors). While market capitalization of Equifax is $19.36 billion, that of Green Dot is $2.87 billion.
As both the stocks carry a Zacks Rank #3 (Hold), we are using certain other parameters to give investors a better insight. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Green Dot clearly scores over Equifax in terms of price performance. So far this year, shares of Green Dot have gained 129.8%, outperforming the 14.4% increase of Equifax and 5.3% growth of the industry it belongs to.
Earnings Surprise History
Earnings surprise history helps investors to get an idea of the company’s performance in the previous quarters.
Both Equifax and Green Dot surpassed the Zacks Consensus Estimate in each of the previous four quarters. However, Green Dot delivered a higher average earnings surprise of 247.6% compared with 9% for Equifax.
Earnings Estimate Revisions
The direction of estimate revisions serves as an important pointer when it comes to the price of a stock.
Over the past 60 days, the Zacks Consensus Estimate for Green Dot’s current-quarter earnings has risen more than 100% compared with an increase of 18.5% for Equifax. For full-year 2020, Green Dot’s earnings estimates have improved 24% compared with an increase of 9.9% for Equifax. For 2021, Green Dot’s earnings estimates have improved 10.7% compared with an increase of 4.7% for Equifax.
Based on quarterly and yearly earnings estimate revisions in the past 60 days, Green Dot is better placed than Equifax.
The price to earnings ratio (P/E) metric is used to measure a company's value relative to its earnings. In general, a lower number or multiple is considered better than a higher one.
The trailing 12-month price-to-earnings (P/E - TTM) multiple for Green Dot and Equifax is 37.2 and 26.7, respectively, while that of the industry is 34.2. Equifax has an edge with a lower P/E - TTM value.
Net profit margin helps investors evaluate a company’s business model in terms of pricing policy, cost structure and operating efficiency, and shows how good it is at converting revenues into profits. Hence, a strong net profit margin is preferred by all classes of investors.
Green Dot and Equifax have a TTM net margin of 4.4% and 8%, respectively. Though both the stocks compare unfavorably with the industry’s figure of 37.3%, Equifax has a lead over Green Dot.
Our comparative analysis shows that Green Dot scores over Equifax in terms of price performance, earnings estimate revisions and earnings surprise history. However, Equifax enjoys an advantage in terms of net margin.
A faster share price rally over the past year has led to a rich valuation for Green Dot compared with Equifax.
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Equifax, Inc. (EFX): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.