Provident Financial Services Inc (NYSE:PFS), a US$1.6b 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 strong double-digit growth of 28% in the upcoming year , and a strong near-term growth of 26% 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 Provident Financial Services is lagging or leading in the industry.
What’s the catalyst for Provident Financial Services’s sector growth?
The mortgage industry is characterized by stable product offerings, consolidation and increasing levels of external competition. In the past year, the industry delivered growth of 9.4%, though still underperforming the wider US stock market. Provident Financial Services lags the pack with its negative growth rate of -0.2% over the past year, which indicates the company has been growing at a slower pace than its mortgage and thrifts peers. Although Provident Financial Services is poised to deliver a 19% growth next year, moving it from negative to positive territory, it still lags its industry average rate of growth of 28%.
Is Provident Financial Services and the sector relatively cheap?
The mortgage and thrifts industry is trading at a PE ratio of 19.69x, in-line with the US stock market PE of 20.28x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a lower 6.2% compared to the market’s 10%, potentially indicative of past headwinds. On the stock-level, Provident Financial Services is trading at a PE ratio of 16.61x, which is relatively in-line with the average mortgage and thrifts stock. In terms of returns, Provident Financial Services generated 7.1% in the past year, in-line with its industry average.
If Provident Financial Services 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 Provident Financial Services’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 PFS’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 Provident Financial Services? 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.