Cowen (COWN) may not be a household name in the financial services industry, but that doesn't mean you should shove it in the junk drawer.

The New York-based firm offers investment banking, brokerage, research, and investment management services for investors. The stock returned 18% last year and is up about 9% already this year on a strong fourth-quarter earnings report. 

The company is split into two primary segments: the broker-dealer division, which includes investment banking, research, and prime brokerage, among other services; and an investment management division, which runs about $11.4 billion in primarily alternative investment strategies for institutional investors.

Investment banking leads the way

Cowen is coming off a pretty good fourth quarter, as revenue increased 8% to $281 million compared to the fourth quarter of the previous year. For the full year, revenue climbed 9% to $1.049 billion. The company beat earnings estimates for the quarter, with net income up 4% to $3.5 million and earnings per share up 106% to $0.58.

A glass jar full of dollar bills of various denominations

Cowen is a broker-dealer and investment manager. Image source: Getty Images.

The biggest boost came from the investment banking segment, as the company reported a revenue increase of 22% to $95 million in the quarter. Investment banking was buoyed by increased activity from the technology and healthcare segments. Also, the company saw revenue jump in Europe thanks to its January 2019 acquisition of investment banking firm Quarton International AG.

The gains in investment banking were offset by a 12% decline in revenue (to $108.7 million) from the brokerage business. However, while down 12%, the brokerage business was up against a 20% overall decline in U.S. equity volumes in the quarter. The investment management side also helped pick up the slack with a 24% increase in management fees in the quarter to $13.4 million. 

Does it belong in your house?

The concern for Cowen is that it's a small player -- its market cap is about $600 million -- competing in consolidating broker-dealer and investment management markets. That will make it tougher to compete against the economies of scale of some of its larger counterparts. But Cowen leadership has recognized this and seems to be taking the right steps to create a lane for itself.

In the fourth-quarter earnings release, CEO Jeffrey Solomon said:

In 2019, we made considerable progress by simplifying our business, diversifying revenues and ensuring that we can achieve consistent profitability for the long run. The investments we made -- the Quarton acquisition, the hiring of new teams in banking and markets, and improvements to our technology and infrastructure -- all position us well as we look ahead to 2020.

Specifically, Cowen has streamlined its asset management business to concentrate mostly on private equity portfolios, which is consistent with its expertise. In the investment banking business, the company has focused a lot of its resources and activity on the growing healthcare and bio-sciences segments, but it's also looking to specialize in other growing areas where it has thought leadership and expertise, including cannabis, digital health, and robotics, among others. Also, the Quarton acquisition brought about a $35 million revenue boost for the full year, and the hope is to continue to grow that business in Europe.

These are the reasons the consensus view among analysts is that Cowen is a buy, with strong earnings expectations for the next couple of years. Trading at about $17 per share, it's a good, cheap stock thatʻs undervalued with a forward P/E ratio of about 6. The combination should make it a good investment.