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Under $10 POWR Stock of the Week: Medallion Financial (MFIN)

Since the housing bubble in the late 2000’s the U.S. has enjoyed an almost uninterrupted period of easy money. Financing for anything and everything was freely available from a wide variety of lenders. That came to an abrupt end last year as runaway inflation forced the Federal Reserve to rapidly raise interest rates, and forced borrowers to turn to creative lenders like Medallion Financial.

While the latest “pause” from the Federal Reserve has markets rallying in anticipation of rate cuts next year, for borrowers rates remain high. And, if the Fed does begin cutting next year, it’s highly doubtful that rates will come down anywhere near as fast as they were raised over the past year. 

That leaves a multitude of borrowers still scrambling for creative financing options in the short term, and likely for most of 2024 as well. One company that has shifted its business strategy to address the needs of borrowers in this environment is Medallion Financial (MFIN)

Medallion was originally focused on lending for taxi medallions, thus the “Medallion” moniker. But with the explosion of ride sharing companies like Uber (UBER) and Lyft (LYFT), it maintains a small medallion business, but now focuses more on recreational lending, home improvement lending, and commercial lending. 

The company has been executing well on its new strategy, reporting record net income in its latest quarter. According to Medallion President Andrew Murstein, “...earnings of nearly $41 million for the first nine months of the year were up 32% compared to last year.” Recreation loans, which make up 61% of Medallion’s loan portfolio, grew 15% in the quarter YoY. 

Net interest income grew 16% to $48 million, compared to $42 million in the prior year’s quarter. And net assets grew to an all time high of $2.6 billion, also a 16% increase in the quarter YoY.

Even with those numbers Medallion, trading around $9, has a very attractive valuation. Shares trade at only 4.1x earnings and 6.8x projected earnings. The price to sales ratio is also a lowly 0.92x sales, and the company trades at an extremely low 1.8x free cash flow. 

Medallion was able to raise its dividend in the latest quarter by 25%, and now has a 4.2% dividend yield. 

Medallion has an overall B rating in our POWR Rating system, outperforming almost 90% of the stocks we track. The stock is particularly strong on the Momentum and Value components in our ratings. 

With interest rates moderating, it will likely still be some time before rates for borrowers return to levels anywhere near where they were prior to the Federal Reserve’s rate hike campaign. This should keep Medallion on track to continue performing well, offering valuable services to borrowers in need of financing options. 

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MFIN shares were trading at $9.30 per share on Thursday afternoon, down $0.08 (-0.85%). Year-to-date, MFIN has gained 35.92%, versus a 24.68% rise in the benchmark S&P 500 index during the same period.

About the Author: Jay Soloff

Jay is a former professional market maker who cut his teeth trading on the floor of the CBOE. With more than 20 years of experience trading and investing, his focus is on making professional strategies accessible to everyone, which is exactly what does in his highly profitable POWR Income and POWR Stocks Under $10 investment advisory services.


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