3 Financial Services Stocks Investors Shouldn't Be Buying Right Now Financial services providers usually benefit from a rising interest rate environment due to the positive correlation of their revenues with interest rates. However, financial services stocks SoFi Technologies (SOFI), Marathon...
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Financial services providers usually benefit from a rising interest rate environment due to the positive correlation of their revenues with interest rates. However, financial services stocks SoFi Technologies (SOFI), Marathon Digital (MARA), and BitNile (NILE) are not well-positioned to capitalize on the current rate environment. One should avoid these stocks because of their exposure to risky assets or their fundamental weakness. Read more….
The stock market has been under pressure due to the Fed's aggressive interest rate hikes. Despite the Fed's hawkish stance, inflation has persistently hovered around the multi-decade high level.
August's consumer price index (CPI) rose 8.3% year-over-year, beating economists' estimates. The stubborn inflation sprung the Fed back into action, and it hiked the benchmark interest rate by 75 basis points last month for the third consecutive time.
While the rising rate environment has affected most sectors, it has helped financial companies expand their revenues. Although the rising interest rate environment benefits financial services companies, the collapse of risky assets, such as cryptocurrency, has been a major dampener for many significantly exposed to them.
Given this backdrop, it could be wise to avoid fundamentally weak financial services stocks SoFi Technologies, Inc. (SOFI), Marathon Digital Holdings, Inc. (MARA), and BitNile Holdings, Inc. (NILE).
SoFi Technologies, Inc. (SOFI)
SOFI is a digital financial services company. It operates through the lending, financial services, and technology platform segments. The company's lending segment offers student loans and personal and home loans.
The financial services segment provides cash management and investment services through SoFi Money, SoFi Invest, SoFi Credit Card, and SoFi Relay. Its technology platform segment offers the benefits of Galileo and Apex.
SOFI's non-interest expense increased 15.5% year-over-year to $458.24 million for the second quarter that ended June 30, 2022. The company's total liabilities for the quarter ended June 30, 2022, came in at $7.16 billion, compared to $4.48 billion for the fiscal year ended December 31, 2021. Its net loss and loss per share came in at $95.84 million and $0.12, respectively.
Analysts expect SOFI's loss per share for the current quarter to widen 100% year-over-year to $0.10. Over the past year, the stock has declined 72.7% to close the last trading session at $4.97.
SOFI's weak fundamentals are reflected in its POWR Ratings. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has an F grade for Stability and Quality and a D for Growth and Value. Within the F-rated Financial Services (Enterprise) industry, it is ranked #101 out of 103 stocks. To see the other ratings of SOFI for Momentum and Sentiment, click here.
Marathon Digital Holdings, Inc. (MARA)
MARA is a digital asset technology company focused primarily on mining cryptocurrencies in the blockchain ecosystem and operates as a digital asset generator in the U.S.
MARA's revenues declined 15% year-over-year to $24.92 million for the second quarter ended June 30, 2022. Its operating loss widened 61.6% year-over-year to $178.21 million. The company's net loss widened 76% year-over-year to $191.65 million. Also, its loss per share widened by 60.5% year-over-year to $1.75.
Analysts expect MARA's loss per share for the current quarter to widen 86.4% year-over-year to $0.41. Its revenue for the quarter that ended September 30, 2022, is expected to decline 45.6% year-over-year to $28.14 million.
It failed to surpass the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has fallen 72.7% to close the last trading session at $10.76.
MARA's POWR Ratings reflect this bleak outlook. It has an overall rating of F, which translates to a Strong Sell in our proprietary rating system.
It has an F grade for Growth, Value, Stability, Sentiment, and Quality. To see the rating of MARA for Momentum, click here.
BitNile Holdings, Inc. (NILE)
NILE and its subsidiaries design, develop, manufacture, and sell power system solutions for the defense/aerospace, industrial, automotive, telecommunications, healthcare, medical/biopharmaceutical, and textile industries in North America, Europe, the Middle East, and internationally. The company is also engaged in Bitcoin mining and provides digital marketing services.
On September 22, 2022, Kaskela Law LLC announced that it would investigate NILE on behalf of the company's investors, seeking to determine whether NILE and/or the company's representatives have issued false and/or misleading statements and/or failed to disclose material information to its investors, thereby causing investor losses.
NILE's revenues declined 72% year-over-year to $17.37 million for the second quarter ended June 30, 2022. The company's loss from operations came in at $23.72 million, compared to income from operations of $45.82 million in the year-ago period. In addition, its net loss came in at $25.81 million, compared to a net profit of $42.21 million in the year-ago period.
Analysts expect NILE's EPS for fiscal 2022 to remain negative. Over the past year, the stock has lost 92.3% to close the last trading session at $0.18.
NILE's overall F rating equates to a Strong Sell in our POWR Ratings system. It has an F grade for Growth, Stability, and Quality and a D for Sentiment.
NILE is ranked last out of 111 stocks in the Financial Services (Enterprise) industry. Click here to see the other ratings of NILE for Value and Momentum.
SOFI shares were trading at $4.84 per share on Tuesday morning, down $0.13 (-2.62%). Year-to-date, SOFI has declined -69.39%, versus a -24.03% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master's degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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