Financial providers use their expertise in capital allocation and risk assessment to help facilitate economic growth while offering consumers and businesses essential financial services. Furthermore, supportive sentiment has created ideal market conditions, a trend that has enabled the industry to return 5.4% over the past six months, almost identical to the S&P 500.
Although these firms have produced good results, only a handful will thrive over the long term as fintech disruptors are rapidly taking market share from the incumbents. Taking that into account, here are three financials stocks we’re steering clear of.
Piper Sandler (PIPR)
Market cap: $4.53 billion
Tracing its roots back to 1895 and rebranded from Piper Jaffray in 2020, Piper Sandler (NYSE:PIPR) is an investment bank that provides advisory services, capital raising, institutional brokerage, and research for corporations, governments, and institutional investors.
Why Does PIPR Worry Us?
- Annual revenue growth of 3.3% over the last five years was below our standards for the financials sector
- Earnings per share were flat over the last five years while its revenue grew, showing its incremental sales were less profitable
- 5% annual tangible book value per share growth over the last five years was slower than its financials peers
Piper Sandler is trading at $67.37 per share, or 13.9x forward P/E. Read our free research report to see why you should think twice about including PIPR in your portfolio.
Lazard (LAZ)
Market cap: $3.82 billion
Tracing its roots back to 1848 when it began as a dry goods merchant in New Orleans, Lazard (NYSE:LAZ) is a global financial advisory and asset management firm that provides strategic advice to corporations, governments, institutions, and wealthy individuals.
Why Do We Steer Clear of LAZ?
- Flat sales over the last five years suggest it must find different ways to grow during this cycle
- Performance over the past five years shows each sale was less profitable, as its earnings per share fell by 18.7% annually
At $39.16 per share, Lazard trades at 16.3x forward P/E. Check out our free in-depth research report to learn more about why LAZ doesn’t pass our bar.
Berkshire Hathaway (BRK.A)
Market cap: $1.19 trillion
Led by legendary investor Warren Buffett since 1965, transforming it from a struggling textile manufacturer into a corporate giant, Berkshire Hathaway (NYSE:BRK.A) is a diversified holding company that owns businesses across insurance, railroads, utilities, manufacturing, retail, and services sectors.
Why Do We Think Twice About BRK.A?
- Annual sales growth of 4.2% over the last five years lagged behind its financials peers as its large revenue base made it difficult to generate incremental demand
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 7% annually
Berkshire Hathaway’s stock price of $834,672 implies a valuation ratio of 24.5x forward P/E. Dive into our free research report to see why there are better opportunities than BRK.A.
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