Forrester Research, Inc. (FORR) is an independent research and advisory services company. The company operates in three segments: Research, Consulting, and Events. The company sells its products and services through a direct sales force internationally.
On the other hand, Block, Inc. (SQ) creates tools that enable sellers to accept card payments and provides reporting, analytics, and next-day settlement. It includes hardware products, including Magstripe reader, Contactless and chip reader, and Square Stand.
Even though data security breaches and increasing cyberattacks remain a concern for the fintech industry, the surge in digital financial transactions makes its prospects bright. In addition, the Federal Reserve raised rates by 75 basis points last month and is expected to get even tougher with interest rate hikes to drive inflation down, which should help Fintech companies expand their profits.
According to Valuates Reports, the fintech market is expected to grow at a CAGR of 13.9% between 2022 and 2028. Therefore, both FORR and SQ should benefit.
FORR has gained 3.8% over the past year, while SQ has negative returns.
But which of these two stocks is a better buy now? Let’s find out.
Latest Developments
On May 5, 2022, FORR’s Chairman and CEO, George Colony, said, “While the external challenges facing us and the broader economy remain, we are confident in our ability to deliver on our outlook for the balance of the year.”
On April 11, 2022, SQ unveiled the next generation of Square Stand, the company’s iconic countertop device that turns an iPad into a powerful, robust point of sale system that sellers can use to run their business. This should lead to increasing demand for its product.
Recent Financial Results
FORR’s net revenue increased 24% year-over-year to $125 million for the fiscal first quarter ended March 31, 2022. The company’s adjusted net income came in at $8.58 million compared to $8.59 million in the prior-year quarter. Also, its adjusted EPS came in flat at $0.45.
SQ’s net revenue decreased 21.7% year-over-year to $3.96 billion for the fiscal first quarter ended March 31, 2022. The company’s net loss came in at $204.20 million compared to an income of $39 million in the prior-year quarter. Also, its loss per share came in at $0.38 compared to an EPS of $0.08 in the year-ago period.
Past and Expected Financial Performance
FORR’s revenue and EBITDA grew at CAGRs of 9.9% and 21.9%, respectively, over the past three years. Analysts expect FORR’s revenue to increase 12.5% in fiscal 2022 and 10.1% in fiscal 2023. The company’s EPS is expected to grow 10.5% in fiscal 2022 and 17.3% in fiscal 2023. Moreover, its EPS is expected to grow at a rate of 16% per annum over the next five years.
On the other hand, SQ’s revenue and EPS grew at CAGRs of 66.5% and 80.5%, respectively, over the past three years. The company’s revenue is expected to increase 0.9% in fiscal 2022 and 20.6% in fiscal 2023. Its EPS is expected to decline 48.5% in fiscal 2022 but grow 89.8% in fiscal 2023. SQ’s EPS is expected to grow at a rate of 13.6% per annum over the next five years.
Profitability
FORR’s trailing-12-month revenue is 1.53 times what SQ generates. FORR is also more profitable, with a gross profit margin and EBITDA margin of 58.93% and 11.32%, compared to SQ’s 28.68% and 0.76%, respectively.
Furthermore, FORR’s ROE, ROA, and ROTC of 12.69%, 3.59%, and 6.54% compared to SQ’s negative values.
Valuation
In terms of forward EV/EBITDA, SQ is currently trading at 52.69x, 294.1% higher than FORR’s 13.37x. Moreover, SQ’s forward non-GAAP P/E ratio of 76.29x is 233.9% higher than FORR’s 22.85x.
So, FORR is the more affordable stock.
POWR Ratings
FORR has an overall rating of A, equating to Strong Buy in our proprietary POWR Ratings system. On the other hand, SQ has an overall rating of F, which translates to Strong Sell. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
FORR has a grade of A for Quality. This is justified given its trailing-12-month levered FCF margin of 16.49%, 406.6% higher than the industry average of 3.26%. On the other hand, SQ has a Quality grade of D, consistent with its 0.58% trailing-12-month net income margin, 93.8% lower than the industry average of 9.28%.
FORR has an A grade for Sentiment and a B for Growth, consistent with analysts’ expectations that its EPS will increase in the upcoming months. On the other hand, SQ has a D grade for Growth and Sentiment, in sync with analysts’ expectations that its EPS will decline in the near term.
FORR has a B grade for Stability, in sync with its beta of 0.99. On the other hand, SQ has an F grade for Stability, consistent with its beta of 2.38.
Of the 109 stocks in the Financial Services (Enterprise) industry, FORR is ranked #1. In comparison, SQ is ranked #105.
Beyond what I’ve stated above, we have also rated the stocks for Momentum and Value. Click here to view all the FORR ratings. Also, get all the SQ ratings here.
The Winner
The fintech industry is well-positioned to benefit from ongoing rapid digital transformation. While both FORR and SQ are expected to gain in the long run, it is better to bet on FORR now because of its lower valuation, higher profitability, and better growth prospects.
Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Financial Services (Enterprise) industry here.
SQ shares were trading at $63.90 per share on Monday afternoon, up $2.44 (+3.97%). Year-to-date, SQ has declined -60.44%, versus a -19.14% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.
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