In this piece, I have evaluated two financial stocks, SoFi Technologies, Inc. (SOFI) and Manhattan Bridge Capital, Inc. (LOAN), to determine the better investment. Based on a fundamental comparison of these stocks, LOAN appears to be a more fiscally responsible stock to own for reasons explained throughout this article.

After maintaining rates at 0%-2.5% for 14 years, the Fed began an aggressive rate increase campaign due to surging pandemic-induced inflation. Last month, Federal Open Market Committee raised its funds rate by a quarter percentage point to a target range of 5.25%-5.5%, the highest level for the benchmark rate since early 2001.

Moreover, Federal Reserve officials expressed concern at their most recent meeting about the pace of inflation and said more rate hikes could be necessary unless conditions change. These potential rate hikes could prove advantageous for financial firms, as higher interest rates have the potential to bolster their profit margins.

In addition, the increasing wealth of high-net-worth individuals, rising demand for alternative investments, increased use of blockchain to reduce fraudulent transactions, and growing urbanization are boosting the financial market.

According to a report by The Business Research Company, the global financial services market is expected to grow to $37.48 trillion by 2027 at a CAGR of 7.5%.

When it comes to price performance, SOFI is the clear winner. SOFI’s stock has gained 18.3% in the past six months compared to LOAN’s 17.3% decline. In addition, SOFI’s stock has gained 79.2% year-to-date, compared to LOAN’s 12.2% decline.

However, here are the reasons I think LOAN could perform better in the near term:

Recent Developments

On August 2, 2023, SOFI was named to CNBC’s list of the World’s Top Fintech Companies 2023. CNBC and Statista Inc. presented this award.

Conversely, on April 11, 2023, LOAN's Board of Directors authorized a share buyback program, pursuant to which the company may, from time to time, purchase up to 100,000 of its common shares.

As of June 30, 2023, the company had purchased an aggregate of 33,360 common shares under this repurchase program, at an aggregate cost of approximately $165,000.

Recent Financial Results

SOFI’s total noninterest expense rose 19.4% year-over-year to $547.35 million for the second quarter ended June 30, 2023. Its net loss and net loss per share amounted to $47.55 million and $0.06. In addition, its total noninterest income from the Lending segment declined 30.4% over the prior-year quarter to $99.56 million.

On the other hand, in the fiscal second quarter ended June 30, 2023, LOAN’s total revenues increased 13.4% year-over-year to $2.40 million. Its income from operations grew 3.7% year-over-year to $1.40 million. The company’s net income rose 4.8% over the prior-year quarter to $1.42 million, and EPS remained flat at $0.12.

Expected Financial Performance

SOFI’s revenue has grown at 50.8% CAGR over the past three years. Its EPS is expected to rise 13% in the current quarter, 80.2% in the next quarter, and 51.1% in the current year.

Over the past three years, LOAN’s revenue and net income have grown at a CAGR of 6.1% and 5.1%. Its EPS is expected to rise 9.1% in the current quarter, 20% in the next quarter, and 4.4% in the current year.

Profitability

SOFI’s trailing-12-month gross profit margin of 81.01% is lower than LOAN’s 100%. LOAN’s trailing-12-month net income margin of 75.40% compares to SOFI’s negative 10.91%.

Thus, LOAN is more profitable.

Valuation

LOAN’s trailing-12-month Price/Book of 1.25x is lower than SOFI’s 1.49x. However, SOFI’s trailing-2-month P/S multiple of 4.26 is lower than LOAN’s 7.93.

POWR Ratings

SOFI has an overall rating of D, which equates to a Sell in our proprietary POWR Ratings system. On the other hand, LOAN has an overall rating of B, translating to a Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. SOFI’s 24-month beta of 1.83 justifies its F grade for Stability. On the other hand, LOAN’s 24-month beta of 0.31 is consistent with its B grade for Stability.

Among the 99 stocks in the Financial Services (Enterprise) industry, SOFI is ranked #93, while LOAN is ranked #2.

Beyond what we’ve stated above, we have also rated both stocks for Value, Quality, Growth, Momentum, and Sentiment. Click here to view SOFI’s ratings. Get all the ratings of LOAN here.

The Winner

The financial industry is booming due to high-interest rates, rising urbanization, and the growing per capita income of the population. Both SOFI and LOAN are expected to benefit from the industry tailwinds.

However, given SOFI’s relatively poor financial performance, grim profit margins, and high beta, LOAN emerges as the superior choice.

Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Financial Services (Enterprise) industry here.

What To Do Next?

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LOAN shares were trading at $4.69 per share on Thursday morning, up $0.01 (+0.21%). Year-to-date, LOAN has declined -8.05%, versus a 15.88% rise in the benchmark S&P 500 index during the same period.

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.

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