First Defiance Financial Corp (NASDAQ:FDEF), a US$656.50m small-cap, is a financial services company operating in an industry, which is impacted by macroeconomic factors such as interest rate changes and inflation. Financial services analysts are forecasting for the entire industry, a strong double-digit growth of 26.69% in the upcoming year , and a robust short-term growth of 26.12% over the next couple of years. However, this rate came in below the growth rate of the US stock market as a whole. Below, I will examine the sector growth prospects, as well as evaluate whether First Defiance Financial is lagging or leading in the industry.
What’s the catalyst for First Defiance Financial’s sector growth?
The mortgage industry is characterized by stable product offerings, consolidation and increasing levels of external competition. In the previous year, the industry saw growth of 9.49%, though still underperforming the wider US stock market. First Defiance Financial leads the pack with its impressive earnings growth of 49.38% over the past year. However, analysts are not expecting this industry-beating trend to continue, with future growth expected to be 11.55% compared to the wider mortgage and thrifts sector growth hovering in the twenties next year. As a future industry laggard in growth, First Defiance Financial may be a cheaper stock relative to its peers.
Is First Defiance Financial and the sector relatively cheap?
The mortgage and thrifts sector’s PE is currently hovering around 18.93x, relatively similar to the rest of the US stock market PE of 18.19x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. However, the industry returned a lower 6.60% compared to the market’s 11.39%, potentially indicative of past headwinds. On the stock-level, First Defiance Financial is trading at a PE ratio of 15.82x, which is relatively in-line with the average mortgage and thrifts stock. In terms of returns, First Defiance Financial generated 10.76% in the past year, which is 4.16% over the mortgage and thrifts sector.
If First Defiance Financial has been on your watchlist for a while, now may not be the best time to enter into the stock. The company is a mortgage and thrifts industry laggard in terms of its future growth outlook, and is trading relatively in-line with its peers. If growth and mispricing are important aspects for your investment thesis, there may be better investments in the financial sector. However, before you make a decision on the stock, I suggest you look at First Defiance Financial’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 FDEF’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 First Defiance Financial? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see past 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.
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