Financial service companies’ profitability tends to be tied to the economic cycle, since these businesses provide services such as consumer financing and investment banking, which tend to do well when times are good. Garda Capital Group and Katana Capital are financial stocks on my list that are potentially undervalued. This means their current share prices are trading well-below what the companies are actually worth. There’s a few ways you can measure the value of a financial company – you can forecast how much money it will make in the future and base your valuation off of this, or you can look around at its peers of similar size and industry to roughly estimate what it should be worth. Below, I’ve created a list of companies that compare favourably in all criteria based on their most recent financial data, making them potentially good investments.

Garda Capital Group (ASX:GCM)

Garda Capital Group is currently led by CEO Matthew Madsen. With the company’s market capitalisation at AUD A$24.03M, we can put it in the small-cap category

GCM’s stock is currently hovering at around -49% below its value of $1.94, at the market price of AU$1.00, based on my discounted cash flow model. This mismatch indicates a potential opportunity to buy low. Furthermore, GCM’s PE ratio stands at around 7.82x against its its Capital Markets peer level of, 19.55x implying that relative to its peers, GCM’s stock can be bought at a cheaper price. GCM is also a financially healthy company, with current assets covering liabilities in the near term and over the long run.

Dig deeper into Garda Capital Group here.

Katana Capital Limited (ASX:KAT)

Katana Capital Limited is a self management investment trust. Katana Capital was established in 2005 and with the market cap of AUD A$33.90M, it falls under the small-cap stocks category.

KAT’s shares are currently floating at around -33% less than its actual worth of $1.16, at a price tag of AU$0.78, based on my discounted cash flow model. This mismatch indicates a chance to invest in KAT at a discounted price. Furthermore, KAT’s PE ratio is trading at around 8.71x against its its Capital Markets peer level of, 19.55x implying that relative to its comparable set of companies, you can buy KAT for a cheaper price. KAT is also a financially robust company, with current assets covering liabilities in the near term and over the long run. KAT also has no debt on its balance sheet, which gives it headroom to grow and financial flexibility. Interested in Katana Capital? Find out more here.

K2 Asset Management Holdings Ltd (ASX:KAM)

K2 Asset Management Holdings Ltd. is a privately owned investment manager. Founded in 1999, and now run by Campbell Neal, the company now has 21 employees and has a market cap of AUD A$44.48M, putting it in the small-cap category.

KAM’s shares are now floating at around -57% under its real value of $0.43, at the market price of AU$0.18, based on its expected future cash flows. The discrepancy signals an opportunity to buy low. Additionally, KAM’s PE ratio stands at around 7.61x while its Capital Markets peer level trades at, 19.55x suggesting that relative to its competitors, we can invest in KAM at a lower price. KAM is also a financially healthy company, as short-term assets amply cover upcoming and long-term liabilities. KAM also has no debt on its balance sheet, which gives it headroom to grow and financial flexibility. Interested in K2 Asset Management Holdings? Find out more here.

For more financially sound, undervalued companies to add to your portfolio, explore this interactive list of undervalued stocks. Or create your own list by filtering ASX companies based on fundamentals such as intrinsic discount, health score and future outlook using this free stock screener.

To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.