The market continues to sell off stocks that are less than perfect when the earnings report comes out. Therefore, seeing a company posting gains after gains is eye-catching. Granted, one earning call cannot make or break a stock, but a stock with a strong report has the sure promise of delivering fortunes.
That is why we will consider two financial stocks today. These stocks have not only been reporting solid financial earnings, but their long-term growth stories are very attractive and sound. The stocks are Upstart (NASDAQ: UPST) and Kinsale Capital Group (NYSE: KNSL).
Upstart
Upstart (NASDAQ: UPST) went public in late 2020. This is a lending platform that harnesses the power of artificial intelligence. Since the IPO, the company has exploded into the investing scene as its value proposition on credit risk is innovative. Using machine learning technology, Upstart aims to disrupt the traditional credit scoring system and allow companies to carry out an effortless risk assessment.
The Upstart stock has been volatile in the market. It initially rose 1,000% after the IPO but has seen the share price drop 60%. However, operationally, the company has been firing on all cylinders.
The revenue growth for the company for 2021 jumped 264% to $849 million from $233 million in 2020. Net income rose 2,16% to $135 million from $6 million. The transaction volume increased 241% to $11.8 billion.
One interesting fact about the results is that the personal loan operations are not yet at peak efficiency. However, as the company’s AI and machine learning operations are fine-tuned, the results will continue to be outstanding. The long-term story for Upstart promises to be a golden one. Already, its market capitalization is $11 billion for a new company, but the target addressable market (TAM) is $6 trillion. So, there is a lot to expect with time.
Kinsale Capital
Kinsale Capital Group (NYSE: KNSL) is in the sneaky and exciting excess and surplus (E&S) insurance industry. The stock has turned out to be one of the fastest-growing in the financial sector. Over the past five years, it has averaged a 3% annualized growth rate. Kinsale's strategy in the E&S sector is to insure high-risk businesses that other insurers would not take on.
Annually, earnings per share have continued to grow by 55%. Growth is driven by its focus on harnessing smaller accounts in the E&S sector and having an improved cost structure using its proprietary underwriting technology.
Revenue growth for the company was 39% at $640 million in 2021 from $460 million in 2020. Over the same period, earnings per share rose from $3.16 to $5.74, an 82% growth, while investment income increased by 19% to $31 million. The jump in earnings per share comes from Kinsale having a 75% combined ratio, a metric for measuring the overall profitability of an insurer.
A combined ratio below 100% is profitable in the insurance industry, so Kinsale’s 75% is outstanding. The average for Kinsale’s peers is 96%. Only two companies are better than Kinsale in this metric which shows the company’s exclusive focus on the E&S insurance niche is paying off indeed.
Also, the profit margin of the company was 24%. This is quite an improvement because the profit margin was 13% in 2018.
Due to its high earnings per share, Kinsale is currently trading at a discount. The P/E ratio of 32 looks cheap considering Kinsale’s annualized growth rate. This is noteworthy even if this performance is not repeated in 2022.
In conclusion, these two stocks would be great for your portfolio especially if you have no exposure to the financial sector. However, with recent events happening in Europe, the market has been highly volatile. Having a good entry point may be difficult at the moment. But you won't go wrong putting these stocks on your watchlist.
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