Financial service stocks generally perform in-line with the economy, since these businesses offer services ranging from investment banking to consumer financing, which are in demand during prosperous economic times. Currently, Hennessy Advisors and Manning & Napier are financial companies I’ve identified as potentially undervalued, meaning their share price is below what these companies are actually worth. Investors can determine how much a financial company is worth based on how much money they are expected to make in the future, or compared to the value of their peers. The list I’ve put together below are of stocks that compare favourably on all criteria, which potentially makes them good investments if you believe the price should eventually reflect the stock’s actual value.
Hennessy Advisors, Inc. (NASDAQ:HNNA)
Hennessy Advisors, Inc. is publicly owned investment manager. Started in 1989, and currently lead by Neil Hennessy, the company employs 22 people and with the company’s market cap sitting at USD $144.68M, it falls under the small-cap category.
HNNA’s stock is now trading at -57% under its intrinsic level of $43.04, at the market price of US$18.53, based on its expected future cash flows. signalling an opportunity to buy the stock at a low price. What’s even more appeal is that HNNA’s PE ratio is trading at 7.16x relative to its Capital Markets peer level of, 16.34x suggesting that relative to its competitors, you can purchase HNNA’s stock for a lower price right now. HNNA is also in great financial shape, as short-term assets amply cover upcoming and long-term liabilities. It’s debt-to-equity ratio of 37.24% has been reducing over time, revealing HNNA’s capacity to pay down its debt. Interested in Hennessy Advisors? Find out more here.
Manning & Napier, Inc. (NYSE:MN)
Manning & Napier, Inc. is publicly owned investment manager. Founded in 1970, and currently lead by Charles Stamey, the company now has 433 employees and with the market cap of USD $245.70M, it falls under the small-cap category.
MN’s shares are currently floating at around -94% lower than its true level of $47.81, at a price of US$3.05, according to my discounted cash flow model. This mismatch indicates a chance to invest in MN at a discounted price. In terms of relative valuation, MN’s PE ratio is trading at around 15.02x while its Capital Markets peer level trades at, 16.34x meaning that relative to its comparable company group, you can purchase MN’s stock for a lower price right now. MN is also strong in terms of its financial health, as short-term assets amply cover upcoming and long-term liabilities. MN also has no debt on its balance sheet, which gives it headroom to grow and financial flexibility. More on Manning & Napier here.
Cherry Hill Mortgage Investment Corporation (NYSE:CHMI)
Cherry Hill Mortgage Investment Corporation, a residential real estate finance company, acquires, invests in, and manages residential mortgage assets in the United States. Cherry Hill Mortgage Investment was formed in 2012 and with the stock’s market cap sitting at USD $285.05M, it comes under the small-cap stocks category.
CHMI’s stock is now floating at around -75% lower than its intrinsic level of $72.27, at the market price of US$18.17, according to my discounted cash flow model. This mismatch indicates a chance to invest in CHMI at a discounted price. In addition to this, CHMI’s PE ratio stands at around 4.06x compared to its Mortgage REITs peer level of, 9.9x implying that relative to other stocks in the industry, we can purchase CHMI’s shares for cheaper. CHMI is also a financially robust company, with near-term assets able to cover upcoming and long-term liabilities.
More on Cherry Hill Mortgage Investment here.
For more financially sound, undervalued companies to add to your portfolio, explore this interactive list of undervalued stocks.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.