Dealmaker’s Diary: Bank on This Cheap, Small Cap Financial Play

Alpesh Patel|August 1, 2024

While the tech sector is in a volatile moment… we’re shifting our focus to the world of finance.

My GVI system has uncovered a small-cap company that’s proving you don’t need to break the bank to find a great investment opportunity.

This firm operates in core banking, small business lending, and mortgage banking.

And despite its modest size, the numbers are impressive. It passes my GVI test with score of 7 out of 10… and has a reasonable P/E ratio of 13.5. Plus, the stock is about 30% undervalued.

What really caught my eye is the potential for momentum. If small caps take off, this stock could see significant gains. There’s plenty of room for upside.

Ready to cash in on this opportunity?

Get all the details on the company – including its ticker – in my latest video.

Click on the image below to watch it.

 

TRANSCRIPT

Hi, friends, and welcome to another Dealmaker’s Diary, and its Stock of the Week.

I’ve gone for financials. Well, not least because tech is taking a little bit of a volatile moment, to say the least.

So I’ve gone for financials. We look through a lot of companies, as you know, to find ones which catch my eye.

My team sift through it first round and then I go through it. So we’ve got First Savings Financial Group (FSFG).

They’ve got core banking, small business administration lending, and mortgage banking.

Those things in and of themselves could go either way for a company.

What attracted me were some of the numbers associated with the company.

It’s a small company. That doesn’t normally attract me, but I think it’s interesting. A hundred million dollar company.

Let’s look at some of those numbers.

I don’t want to talk about the narrative of there might be more of a push toward entrepreneurialism as you look on social media. The trend seems to be in that direction and there should be companies which would benefit.

The narrative I’ll put to one side. What I will look at are the specific numbers.

When I look at my proprietary Growth-Value-Income rating, my GVI score, it’s a 7 out of 10. Now, remember, this measures the valuation of a company, its share price compared to profitability, its revenue growth, sales growth, dividend yields, and so on.

So it’s a good number.

Forecast P/E is at a multiple of 13.5. That’s the price for every forecasted dollar of profits. Now, in financial services, that’s not expensive. It’s not cheap, but it’s certainly not expensive.

CROCI, sometimes in financial services companies, you don’t get that number. It’s not necessarily the most valued number either.

So no cash return on capital invested number there.

And I’m not so worried that we don’t have it. As you know, for my GVI Investor research service, I always make sure we’ve got companies with CROCI.

Sortino, which measures the average return versus downside risk, I’ve let that fly as well because the volatility is under 15%.

But it was really with this one, I’m going for the 7 GVI score.

I’ll tell you what else I’m going for. It’s this momentum.

If we do continue getting rotation into smaller cap companies, into these relatively undervalued financial services companies, then what’s going to happen is, beyond anything else, it’s really going to be the momentum.

That’s the broader trend. Now, of course, within that trend, something could easily fall within that band, of course. That’s fine.

This monthly MACD should be going there. It’s got a long room to do it. The last time we were at these kinds of levels, even if I take this, that still gives a lot of room to the upside.

And so it’s really been more of a momentum play which attracted me, plus the discount cash flow, which says the stock is 30% undervalued at the very least.

So those are all the reasons the stock caught my attention.

Thank you very much. I hope you are enjoying your summer break. Thank you.