It wasn’t long ago that banks were open from 9-5, money transfers took days, paying friends required cash, and small businesses had to roll their sleeves up to manage order taking and record keeping.
Those days are behind us.
A wave of innovation has swept over the financial technology space prompting investors to scout out the best fintech stocks to buy now. Here is a shortlist:
Paypal Dominant In Peer-to-Peer Payments
Paypal is without question the pre-eminent online money transfer service on the market today.
The company has cornered almost every niche in the space, and its growth is seemingly unstoppable, with new innovations like the Venmo peer-to-peer payments platform and its entry into the cryptocurrency game just small examples of its vast reach. But can it maintain this dominance into the future? And if so, how?
The first thing to note here is that investors are still pretty bullish on Paypal, and this is reflected in almost all its financial metrics.
Paypal’s share price appreciated by over 340% last year, and its earning per share has delivered the same kind of value by tripling over the equivalent period as well. No doubt the recent Bitcoin mania and pandemic spending practices have been tailwinds in this regard.
But, could a downturn be in the offing? Most indicators would suggest not, as Wall Street remains optimistic, with a 20% price target increase on current valuation over the next year, and the firm is still announcing new business initiatives, such as its partnership with Digital River and the “pay later” product they are both developing.
However, using probabilities derived from the options market based on contracts due to expire in January next year, the option-implied price for Paypal stock appears to be in the negative. Maybe just a point of caution for those not wanting to get too swept away by the bull thesis so soon.
Square Valuation Eclipses Most Fintech Peers
It says something significant about the startling rise of Square, Inc. (SQ) that, among its fintech peers, such as Paypal (PYPL), Mastercard (MA) and Visa (V), the company has probably the highest valuation of the lot, certainly in terms of predicted growth rates.
The company has morphed from a simple business payments processor to a full-suite financial solutions platform, servicing enterprises of all sizes with both software and hardware applications. It has even recently ventured into the consumer-focused market with its Cash App product, garnering huge success in a small space of time.
Square’s stock price has neatly reflected this stratospheric rise, rewarding investors with a 52-week run up from roughly $40 in March 2020 to highs of over $280 earlier this year.
Year-over-year revenue growth is at 101.50%, compared with a sector median of 5.21%. Revenues have increased over 600% the last five years, and the company is clearly still in its growth phase; as such, management has stated that it intends to increase non-GAAP operating expenses to further spur expansion in 2021.
Investors are likely to view Square’s stock as highly attractive, and with good reason. The company is debt free – and still growing sales, free cash flow, revenues and profitability at the same time.
Throw in a proven management team headed by Twitter’s Jack Dorsey, and you might just have the perfect long-term fintech stock on your hands.
Green Dot: Credit Cards For The “Unbanked”
While many investors enter the fintech sector looking for high-growth, high-risk investing opportunities, there are still companies in the space offering a value proposition for those with a milder tolerance for volatility.
One such company is Green Dot. The business is focused on serving the so-called “unbanked” community, and it offers, among many other things, a range of pre-paid credit and debit cards, and has very recently launched a mobile banking platform aimed at addressing the challenges of US customers living from paycheck to paycheck.
The company can draw on its already established network of sales and distribution channels, and, surely, the appointment of a new Chief Technical Officer in the way of industry veteran Gyorgy Tomso is the clearest sign of Green Dot’s intention to capture a slice of the fintech market.
What makes this company so appealing, however, is that for a firm just entering this lucrative space it has such low valuation metrics. Its forward price-to-sales ratio currently sits at 2.17; compare this, say, to MercadoLibre (MELI) – another large company just moving into the fintech business – and whose price-to-sales is 12.41, and Green Dot looks like a very tempting offer.
Mastercard Dividend Rising Almost Every Year
Mastercard is the world’s second largest credit card company, operates globally in every region on the planet, and, like many other credit card operators, took a hit in sales in 2020 due to the COVID-19 crisis and its fallout.
Despite this, Mastercard has consistently raised its yearly dividend over the past nine years, and did so again in 2020.
The company is currently executing a fairly aggressive share buy-back scheme, which, together with a reduction in operating expenses, has seen an admirable growth in its bottom line.
Reassuringly, the company’s share price has not been impacted by the drop in revenues of the last year. Not only has it recovered from the March 2020 sell-off, but it surpassed its pre-virus price to hits highs of $384 in March 2021.
What is slightly bizarre regarding Mastercard is that, for such a large corporation, the business is in a place now where growth opportunities abound. For example, the company’s Chief Financial Officer, Sachin Mehra, identified during the firm’s latest conference call that big data analytics, cryptocurrency, cybersecurity and digital are all expected growth drivers for the business long-term.
If a safe dividend and multiple potential growth streams seem good to you, Mastercard stock might just be what you’re after.
Synchrony Financial, An Old Buffett Favorite
Credit card companies didn’t have the easiest time during global lockdowns as job losses and business closures resulting from the coronavirus pandemic caused overall sales to decrease and consumer spending to dry-up.
And yet, as the year closed out, recovery was on the cards, with the start of a global vaccination initiative taking shape and old shopping habits returning to something approaching normal.
For Synchrony Financial, this nascent recovery can’t come soon enough. This company that historically has earned a spot in Warren Buffett’s portfolio has had its share of difficulties.
The US-based independent credit card issuer had a mixed year, with a dismal second quarter earnings low of $46 million, but managed to bounce back strongly posting $738 million in sales for its fourth quarter figures. T
he company didn’t drag its heels in 2020 either, having undertaken an expense reduction plan which resulted in an improved return on equity of 23.6%.
Synchrony Financial has suffered some setbacks as of late, with the loss of its partnership with Walmart being one of its most severe. However, the company has plenty of growth potential going forward, and the business is already forming new alliances and initiatives with existing clients.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.