The financial technology (fintech) space has evolved rapidly over the past several years as rising interest rates caused many fintech companies to expand their products and services.
While some fintech companies failed to adapt, some figured out how to grow customers in an increasingly competitive landscape. Three fintech stocks that have come out stronger on the other side are SoFi Technologies (NASDAQ: SOFI), American Express (NYSE: AXP), and PayPal (NASDAQ: PYPL). Here’s why you should consider buying them now.
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SoFi has a growing list of financial services available to customers, including checking and savings accounts, investing, and loans. While there’s plenty of competition in the online banking market, SoFi continues to increase its customer count and sales.
In the third quarter (ending Sept. 30), SoFi’s revenue increased 30% to $697 million, and the addition of 756,000 new members (what SoFi calls customers) brought its total membership to 9.4 million — an impressive increase of 35% from the year-ago quarter.
Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) jumped 90% to $186.2 million, and SoFi CEO Anthony Noto said the quarter was the “strongest in our history.”
With SoFi firing on all cylinders, it’s no surprise its stock has gained 98% over the past year (as of this writing). It’s worth mentioning that this steep share price rise has made SoFi’s stock a bit expensive. SoFi’s stock has a forward price-to-earnings ratio of 78.1. But with its growing membership, sales, and earnings, long-term investors may want to pick up shares as the company expands its reach in the fintech space.
While you might think of American Express as simply a credit card company, its vast payment system and network of fintech partnerships mean the company is knee-deep in the fintech market.
That’s great news for investors looking for a compelling financial technology play, because American Express continues to attract new customers and increase its top and bottom lines. Sales increased 8% in the third quarter (which ended Sept. 30) to $16.6 billion, and diluted earnings per share rose 6% to $3.49.
This growth was spurred by 3.3 million new cardholders signing up in the quarter and card member spending increasing by 6%. The strong quarter resulted in management raising its full-year earnings guidance to $13.90 per share, up from $13.55, at the midpoint of guidance.
Not only is American Express growing at a healthy clip, but the company’s stock is also relatively cheap. The company’s shares have a forward P/E ratio of 19.8 right now, which is far cheaper than the S&P 500 index’s P/E ratio of about 30.9.
PayPal deserves a spot on this because it is one of the leading online payment companies and has one of the most popular person-to-person payment systems, through its Venmo app. The company’s decades of experience in the fintech space mean it’s amassed 432 million global users.
Investors were spooked by PayPal’s third-quarter results (ending Oct. 29) because the company’s management said revenue in the fourth quarter will see “low single-digit growth” in contrast to analysts’ expected growth of 5.4%. But investors missed the bigger picture in which PayPal’s revenue increased 6% to $7.8 billion and non-GAAP earnings per share rose 22% to $1.20.
PayPal is also in a very strong financial position with free cash flow of $1.4 billion, and cash and cash equivalents of $16.2 billion at the end of the quarter. In short, a seemingly slower-than-expected sales growth for one upcoming quarter shouldn’t shake investors’ faith in the company.
In addition to PayPal’s massive user base and strong financial position, the company’s stock also looks cheap. PayPal’s forward P/E ratio is only 18.4 right now, which makes it the cheapest stock on this list and far less expensive than the broader S&P 500’s P/E ratio of more than 30.
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*Stock Advisor returns as of December 2, 2024
American Express is an advertising partner of Motley Fool Money. Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends PayPal. The Motley Fool recommends the following options: long January 2027 $42.50 calls on PayPal and short December 2024 $70 calls on PayPal. The Motley Fool has a disclosure policy.
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