Long-established in the Banks industry, Sumitomo Mitsui Financial Group Inc (NYSE:SMFG) has enjoyed a stellar reputation. It has recently witnessed a surge of 6.25%, juxtaposed with a three-month change of 20.25%. However, fresh insights from the GuruFocus Score Rating hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of Sumitomo Mitsui Financial Group Inc.
Understanding the GF Score
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
1. Financial strength rank: 3/10
2. Profitability rank: 4/10
3. Growth rank: 2/10
4. GF Value rank: 1/10
5. Momentum rank: 6/10
Based on the above method, GuruFocus assigned Sumitomo Mitsui Financial Group Inc the GF Score of 52 out of 100, which signals poor future outperformance potential.
Sumitomo Mitsui Financial Group Inc: A Snapshot
Sumitomo Mitsui Financial Group is roughly tied with Mizuho Financial Group for the status of Japan's second-largest bank after Mitsubishi UFJ Financial Group. As of March 2023, its market share of domestic loans was 7.1%, compared with 8.1% for MUFG. It has a larger consumer finance business than the other two megabanks, owning 100% of the Promise business and SMBC Card. It also controls one of Japan's largest leasing companies and SMBC Aviation Capital, one of the top five aircraft lessors globally. In securities, its SMBC Nikko unit is Japan's third-largest retail broker, although SMFG has lagged somewhat in institutional securities business and asset management.
Financial Strength Breakdown
Sumitomo Mitsui Financial Group Inc's financial strength indicators present some concerning insights about the company's balance sheet health. The company's debt-to-equity ratio is 2.27, which is worse than 86.84% of 1330 companies in the Banks industry. A high debt-to-equity ratio suggests over-reliance on borrowing and vulnerability to market fluctuations. Additionally, the company's debt-to-Ebitda ratio is 8, which is above Joel Tillinghast's warning level of 4 and is worse than 87.87% of 1311 companies in the Banks industry. Tillinghast said in his book Big Money Think's Small: Biases, Blind Spots, and Smarter Investing that a high debt-to-Ebitda ratio can be a red flag unless tangible assets cover the debt.
Sumitomo Mitsui Financial Group Inc's low Profitability rank can also raise warning signals.
A lack of significant growth is another area where Sumitomo Mitsui Financial Group Inc seems to falter, as evidenced by the company's low Growth rank. Lastly, Sumitomo Mitsui Financial Group Inc predictability rank is just one star out of five, adding to investor uncertainty regarding revenue and earnings consistency.
Given the company's financial strength, profitability, and growth metrics, the GuruFocus Score Rating highlights the firm's unparalleled position for potential underperformance. It's crucial for investors to consider these factors when making investment decisions. GuruFocus Premium members can find more companies with strong GF Scores using the following screener link: GF Score Screen.
This article first appeared on GuruFocus.