3 Reasons to Sell LC and 1 Stock to Buy Instead

The past six months have been a windfall for LendingClub’s shareholders. The company’s stock price has jumped 52.3%, hitting $17.74 per share. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.

Is now the time to buy LendingClub, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Why Is LendingClub Not Exciting?

We’re happy investors have made money, but we don't have much confidence in LendingClub. Here are three reasons you should be careful with LC and a stock we'd rather own.

1. Revenue Tumbling Downwards

Long-term growth is the most important, but within financials, a stretched historical view may miss recent interest rate changes and market returns. LendingClub’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 8% over the last two years.

2. EPS Took a Dip Over the Last Two Years

Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.

Sadly for LendingClub, its EPS and revenue declined by 8.8% and 8% annually over the last two years. We tend to steer our readers away from companies with falling revenue and EPS, where diminishing earnings could imply changing secular trends and preferences. If the tide turns unexpectedly, LendingClub’s low margin of safety could leave its stock price susceptible to large downswings.

3. Previous Growth Initiatives Haven’t Impressed

Return on equity (ROE) measures how effectively banks generate profit from each dollar of shareholder equity - a critical funding source. High-ROE institutions typically compound shareholder wealth faster over time through retained earnings, share repurchases, and dividend payments.

Over the last five years, LendingClub has averaged an ROE of 6.7%, uninspiring for a company operating in a sector where the average shakes out around 10%.

Final Judgment

LendingClub isn’t a terrible business, but it doesn’t pass our quality test. After the recent rally, the stock trades at 19× forward P/E (or $17.74 per share). Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We're fairly confident there are better stocks to buy right now. Let us point you toward a safe-and-steady industrials business benefiting from an upgrade cycle.

Stocks We Would Buy Instead of LendingClub

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