Siebert Financial (SIEB) — our latest stock of the month — engages in the retail discount brokerage and investment advisory businesses, notes Faris Sleem, low-priced stock specialist and editor of The Bowser Report.
It offers discount brokerage services, market making services, retail execution services, a robo-advisor platform and a data technology platform for market data, serving customers through 18 branch offices.
The company has been a member of the New York Stock Exchange since 1967 and its late founder, Muriel Siebert, was the first woman to become a member of the Exchange. In 2016, the company came under new ownership in order to modernize its services and build upon its substantial client base.
Siebert Financial reported a strong revenue performance in 2021 and is quickly transforming into a growth stock. This performance was driven by its Securities Finance and Market Making divisions, which achieved year-over-year revenue growth of almost 200%.
Revenue has steadily grown long-term, ramping up in recent years. SIEB has consistently reported healthy top and bottom line growth. Both gross profit and revenue surged in 2020 and maintained momentum again in 2021.
Revenues from the company’s investment advisory subsidiary, NXT, also contributed to these results, which increased 46% year-over-year. Yearly net income jumped to $5 million in 2021, up 69% from the prior year period. Pre-tax income reached its highest level since 2018 and EPS totaled $0.16 in 2021.
Despite this phenomenal growth, SIEB’s share price has been cut in half since 2018 and the stock is trading near its four-year low. Top and bottom line results contradict the decline in share price and show that the value creation is going unrecognized. This creates an opportunity to get a discount on a promising growth and value investment.
The company’s value has been increasing steadily and with its low share count, a continued rise in EPS will skyrocket its underlying value. The hype surrounding blockchain stocks caused a brief overvaluation of the stock in 2021, but it has since come down to a more appealing price.
Based on its value metrics, SIEB is undervalued relative to its competitors. Both its Price/Book (P/B) and Price/Sales Ratio (P/B) are roughly half of the industry average, representing a severe undervaluation.
The acquisition of TD Ameritrade by Charles Schwab (SCHW) changed the industry permanently and has increased demand for smaller brokerages. This makes SIEB a potential buyout candidate because of its consistently positive cash flows and simple business model.
The main risk associated with SIEB is the stock's lack of demand. However, continued value creation should turn the tide on this risk. We believe $1.75-2.10 to be the ideal range for long-term entry for value investors.