Capitol Federal Financial Inc (NASDAQ:CFFN), a US$1.84b small-cap, operates in the mortgage and thrifts industry, which is impacted by macroeconomic factors such as interest rate changes and inflation. Financial services analysts are forecasting for the entire industry, a positive double-digit growth of 27.8% in the upcoming year , and a strong near-term growth of 26.1% 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, and also determine whether Capitol Federal Financial is a laggard or leader relative to its financial sector peers.
What’s the catalyst for Capitol Federal Financial’s sector growth?
The mortgage industry is characterized by stable product offerings, consolidation and increasing levels of external competition. Over the past year, the industry saw growth of 9.4%, though still underperforming the wider US stock market. Capitol Federal Financial leads the pack with its impressive earnings growth of 16.5% over the past year. However, analysts are not expecting this industry-beating trend to continue, with future growth expected to be 8.5% compared to the wider mortgage and thrifts sector growth hovering in the twenties next year. As a future industry laggard in growth, Capitol Federal Financial may be a cheaper stock relative to its peers.
Is Capitol Federal Financial and the sector relatively cheap?
The mortgage and thrifts industry is trading at a PE ratio of 19.87x, in-line with the US stock market PE of 19.86x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a lower 6.4% compared to the market’s 10.6%, potentially indicative of past headwinds. On the stock-level, Capitol Federal Financial is trading at a PE ratio of 18.15x, which is relatively in-line with the average mortgage and thrifts stock. In terms of returns, Capitol Federal Financial generated 7.3% in the past year, in-line with its industry average.
If Capitol Federal 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 Capitol Federal 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 CFFN’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 Capitol Federal 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.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.