Asta Funding Inc (NASDAQ:ASFI), a USD$50.34M small-cap, is a consumer finance company operating in an industry, which has recently been facing serious existential threats resulting from potential disintermediation and disruption from new technology. Financial services analysts are forecasting for the entire industry, a strong double-digit growth of 10.83% in the upcoming year . Today, I’ll take you through the sector growth expectations, and also determine whether Asta Funding is a laggard or leader relative to its financial sector peers. Check out our latest analysis for Asta Funding
What’s the catalyst for Asta Funding’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. Over the past year, the industry saw negative growth of -1.20%, underperforming the US market growth of 10.78%. Asta Funding lags the pack with its earnings falling by more than half over the past year, which indicates the company will be growing at a slower pace than its consumer finance peers. As the company trails the rest of the industry in terms of growth, Asta Funding may also be a cheaper stock relative to its peers.
Is Asta Funding and the sector relatively cheap?
The consumer finance sector’s PE is currently hovering around 14x, lower than the rest of the US stock market PE of 20x. This means the industry, on average, is relatively undervalued compared to the wider market – a potential mispricing opportunity here! Though, the industry returned a similar 12.24% on equities compared to the market’s 10.46%. Since Asta Funding’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Asta Funding’s value is to assume the stock should be relatively in-line with its industry. In terms of returns, Asta Funding generated 0.43% in the past year, which is 12% below the consumer finance sector.
What this means for you:
Are you a shareholder? Asta Funding has been a consumer finance industry laggard in the past year. If your initial investment thesis is around the growth prospects of Asta Funding, there are other consumer finance companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how Asta Funding fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If Asta Funding has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although its growth has delivered lower growth relative to its consumer finance peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. Before you make a decision on the stock, I suggest you look at Asta Funding’s future cash flows in order to assess whether the stock is trading at a reasonable price.
For a deeper dive into Asta Funding’s stock, take a look at the company’s latest free analysis report to find out more on its financial health and other fundamentals. Interested in other financial stocks instead? Use our free playform to see my list of over 600 other financial companies trading on the market.
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.