HomeMarket NewsThe Resilience of Fintech: Unveiling 2 Profound Opportunities and 1 Pitfall to...

The Resilience of Fintech: Unveiling 2 Profound Opportunities and 1 Pitfall to Dodge

Actionable Trade Ideas

always free

The fintech realm was tumultuous over the last couple of years as the ascent of interest rates dampened consumer spending desires and tampered with the market’s evaluations. Powerhouses like Apple posed a formidable challenge to smaller fintech entities by rolling out their personalized digital payment and lending arenas.

Still, astute investors can unearth promising comeback stories in this downtrodden sector. Here are two fintech stocks deserving of investor attention β€” and one to steer clear of until it turns the tide.

Two shoppers use a phone to make a payment at an outdoor market.

Image source: Getty Images.

Revival on the Horizon for Upstart

Upstart (NASDAQ: UPST) deploys its AI algorithms to make lending decisions for financial institutions, credit unions, and automotive vendors. Unlike traditional metrics such as a borrower’s FICO score or income, Upstart delves into atypical data points like educational background, GPA, test scores, and recent job history to assess applicants.

While Upstart flourished when interest rates were at historic lows, growth waned as rates climbed, partners curbed lending, and consumers dialed back loan applications.

Despite a 39% drop in revenue to $514 million in 2023 (compared to 264% growth in 2021), analysts foresee a 14% revenue uptick in 2024 to $585 million with projections of 26% compound annual growth from 2024 to 2026. At a valuation of merely 4 times next year’s sales, the stock could be a retrospectively tantalizing bargain.

Promising Horizons Await Affirm

Affirm (NASDAQ: AFRM) pioneers in the buy now, pay later (BNPL) sphere, offering consumers installment payment options minus the credit card route. This model aids merchants in appealing to a broader consumer base while skirting the swipe fees synonymous with traditional card transactions.

Amid the pandemic-induced e-commerce surge, Affirm thrived, but post-pandemic, inflationary pressures and intensified competition rattled its progress.

Though fiscal 2023 saw an 18% revenue increase to $1.59 billion (down from 71% growth in fiscal 2021), analysts foresee a 38% spike to $2.2 billion in fiscal 2024. With an expected 20% compound annual growth rate through fiscal 2026, the outlook is promising for this stock, trading at a modest 5 times next year’s sales.

Steer Clear of PayPal for Now

PayPal (NASDAQ: PYPL) remains a fintech behemoth despite a recent growth slowdown. Stiff competition, decoupling from eBay, and broader macroeconomic headwinds hindered its growth trajectory.

Growth spurted during the pandemic’s onset with the shift to online payments, but revenue growth clipped at just 8% in 2022 and 2023 post-18% surge in 2021. Projections hint at a meager 7% compound annual growth rate from 2023 to 2026.

Relying heavily on Venmo and Braintree for revenue growth, PayPal faces diluted earnings due to their lower-margin operations. While historically cheap at 17 times forward earnings, these challenges render the stock a tricky bet, potentially underperforming against higher-growth peers as the macro landscape heats up once more.

Should you invest $1,000 in Upstart right now?

Before diving into Upstart, ponder this:

The Motley Fool Stock Advisor team identifies the 10 best stocks for investors now, and Upstart didn’t make the cut. These selections could yield massive returns in the years ahead.

Stock Advisor equips investors with a roadmap for success, featuring portfolio construction guidance, regular analyst updates, and two fresh stock picks monthly. Since 2002, the service has surpassed the S&P 500 return threefold*.

Explore the top 10 stocks

*Stock Advisor returns as of February 26, 2024

Leo Sun holds positions in Apple. The Motley Fool has positions in and recommends Apple and Peloton Interactive. The Motley Fool recommends Fair Isaac and eBay, along with options like short April 2024 $45 calls on eBay. The Motley Fool abides by a disclosure policy.

The views and opinions expressed herein are reflective of the author’s views and opinions, not necessarily aligning with those of Nasdaq, Inc.

Swing Trading Ideas and Market Commentary

Need some new swing ideas? Get free weekly swing ideas and market commentary from Jonathan Bernstein here: Swing Trading.

Explore More

Weekly In-Depth Market Analysis and Actionable Trade Ideas

Get institutional-level analysis and trade ideas to take your trading to the next level, sign up for free and become apart of the community.