Financial service stocks generally perform in-line with the economy, mainly because these businesses offer services ranging from investment banking to consumer financing, which are in demand during prosperous economic times. Currently, Sachem Capital and Dunxin Financial Holdings are financial companies I’ve identified as potentially undervalued, meaning their share price is below what these companies are actually worth. Smart investors can make money from this discrepancy by buying these shares, because they believe the current market prices will eventually move towards their true value. And those that want more exposure to the economic cycle should consider the following list of potentially undervalued financial stocks.
Sachem Capital Corp. (AMEX:SACH)
Sachem Capital Corp. operates as a real estate finance company. Sachem Capital was formed in 2010 and with the company’s market cap sitting at USD $52.88M, it falls under the small-cap group.
SACH’s shares are currently trading at -28% lower than its value of $4.72, at the market price of US$3.38, based on my discounted cash flow model. The difference between value and price signals a potential opportunity to buy SACH shares at a discount. In addition to this, SACH’s PE ratio stands at around 8.83x while its Mortgage peer level trades at, 22.56x meaning that relative to its comparable company group, we can purchase SACH’s shares for cheaper. SACH is also in good financial health, as near-term assets sufficiently cover liabilities in the near future as well as in the long run.
Interested in Sachem Capital? Find out more here.
Dunxin Financial Holdings Limited (AMEX:DXF)
Dunxin Financial Holdings Limited engages in the microfinance lending business in Hubei, China. The company now has 31 employees and with the market cap of USD $115.52M, it falls under the small-cap category.
DXF’s stock is now trading at -34% lower than its actual level of $8.65, at a price of US$5.72, according to my discounted cash flow model. This discrepancy gives us a chance to invest in DXF at a discount. Moreover, DXF’s PE ratio is trading at 5.82x against its its Diversified Financial peer level of, 12.76x indicating that relative to its comparable set of companies, you can buy DXF for a cheaper price. DXF is also a financially robust company, as short-term assets amply cover upcoming and long-term liabilities.
Continue research on Dunxin Financial Holdings here.
Ellington Financial LLC (NYSE:EFC)
Ellington Financial LLC, through its subsidiary Ellington Financial Operating Partnership LLC, operates as a specialty finance company in the United States. Ellington Financial was established in 2007 and with the company’s market capitalisation at USD $455.11M, we can put it in the small-cap category.
EFC’s shares are currently hovering at around 109% below its real value of $7.12, at a price of US$14.85, according to my discounted cash flow model. This difference in price and value gives us a chance to buy low. In addition to this, EFC’s PE ratio stands at 14.22x relative to its Capital Markets peer level of, 16.76x indicating that relative to other stocks in the industry, EFC can be bought at a cheaper price right now. EFC is also strong in terms of its financial health, with short-term assets covering liabilities in the near future as well as in the long run.
Interested in Ellington Financial? Find out more here.
For more financially sound, undervalued companies to add to your portfolio, explore this interactive list of undervalued stocks.
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.