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Financial Stocks: Is Now The Time To Buy Carver Bancorp Inc (CARV)?

Willa Russo

Carver Bancorp Inc (NASDAQ:CARV), a USD$8.55M 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 relatively muted growth of 3.34% in the upcoming year , and an overall negative growth rate in the next couple of years. Unsuprisingly, this is below the growth rate of the US stock market as a whole. Today, I’ll take you through the sector growth expectations, as well as evaluate whether CARV is lagging or leading in the industry. See our latest analysis for CARV

What’s the catalyst for CARV’s sector growth?

NasdaqCM:CARV Past Future Earnings Nov 4th 17
NasdaqCM:CARV Past Future Earnings Nov 4th 17

The mortgage industry is characterized by stable product offerings, consolidation and increasing levels of external competition. In the past year, the industry delivered growth in the teens, beating the US market growth of 4.49%. CARV 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 mortgage and thrifts peers. As the company trails the rest of the industry in terms of growth, CARV may also be a cheaper stock relative to its peers.

Is CARV and the sector relatively cheap?

NasdaqCM:CARV PE PEG Gauge Nov 4th 17
NasdaqCM:CARV PE PEG Gauge Nov 4th 17

The mortgage and thrifts sector’s PE is currently hovering around 20x, relatively similar to the rest of the US stock market PE of 22x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a lower 7.15% compared to the market’s 9.99%, potentially indicative of past headwinds. Since CARV’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge CARV’s value is to assume the stock should be relatively in-line with its industry.

What this means for you:

Are you a shareholder? CARV has been a mortgage and thrifts industry laggard in the past year. If your initial investment thesis is around the growth prospects of CARV, there are other mortgage and thrifts companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how CARV fits into your wider portfolio and the opportunity cost of holding onto the stock.

Are you a potential investor? If CARV 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 mortgage and thrifts 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 CARV’s future cash flows in order to assess whether the stock is trading at a reasonable price.

For a deeper dive into Carver Bancorp’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.