Fintech stocks have been in the limelight in the past year, boosted by novel coronavirus tailwinds. Money transfers, personal finance, e-commerce, payment networks and other fintech companies’ services were increasingly popular in 2020. Even in mature markets, there is still a massive upside to investing in the industry.
Several experts believe that the global pandemic accelerated growth in the industry by a few years. The market is now expected to grow at a CAGR of around 20% to $305 billion by 2025.
Moreover, fintech firms will now be focusing on achieving profitability and building sustainable businesses. Some of the leading fintech stocks are discussed in the article, which are likely to deliver massive returns for shareholders over the long term. Here are seven of them:
- Square (NYSE:SQ)
- Green Dot Corporation (NYSE:GDOT)
- Zuora (NYSE:ZUO)
- PayPal (NASDAQ:PYPL)
- Fiserv (NASDAQ:FISV)
- PagSeguro Digital (NYSE:PAGS)
- StoneCo (NASDAQ:STNE)
Fintech Stocks to Buy: Square (SQ)
Fintech giant has benefited massively from the pandemic-induced tailwinds for the “cashless society.” This is precisely why SQ stock is up almost 227% in the past 12 months. Its two-sided digital payments ecosystem provides it with massive growth opportunities on the seller and consumer side. It differentiates itself from the competition by foraying into a wide range of financial operations, which otherwise seemed impossible for such a company. Therefore, it has the potential of becoming a one-stop shop for financial services.
From an earnings standpoint, the year couldn’t have gone any better for the company. It witnessed a triple-digit percentage increase in revenue in the past three quarters. In the third quarter alone, revenue more than doubled to $3.03 billion with earnings of 34 cents per share. With a strong balance sheet and multiple growth opportunities, Square is the cream of the crop as far as fintech stocks are concerned.
Green Dot Corporation (GDOT)
Green Dot Corporation is a fintech and bank holding company based in the United States. It operates its unique banking-as-service (BaaS) platform used by consumers, tech companies, and the company to deploy financial service products. The company’s unique fintech ecosystem is powering the branchless future in banking. Recovering from a slump in 2019, GDOT stock is up 116.7% in the past 12-months.
Covid-19 helped fuel a turnaround in Green Dot’s fortunes. It has been beating analyst expectations on revenue and profits and deploying its robust BaaS solutions to more companies than ever before. Third-quarter results show a 16.2% increase in revenue year-over-year, on an EPS of 25 cents. With a hefty cash balance of more than $2 billion, it will continue to pursue the BaaS side of its operations, which presents the most significant growth opportunity in the future.
Fintech Stocks to Buy: Zuora (ZUO)
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Zuora is essentially a platform that allows businesses to transition to a subscription-based business model through its unique proprietary software technology. More companies are moving toward a recurring revenue model, and Zuora appears to be championing the subscription economy. Despite building up a great head of steam in the past year or so, ZUO stock is trading at a significant discount to its peers with similar revenue and margins.
The company’s earnings were relatively stable in the past few quarters, beating analyst expectations. In its most recent quarter, revenue grew 7.6%, exceeding analyst expectations by a fair margin. Lower margins from professional services are holding back its incredible success on the subscriptions side. Moving forward, the company has to consider outsourcing its professional services segment to third parties to improve gross margins. Apart from that, its customer base is rising substantially each year and will continue to power its business for the foreseeable future.
Source: Michael Vi / Shutterstock.com
Digital payments giant PayPal is one of the oldest fintech stocks which continues to find new avenues for growth. Most recently, it started accepting cryptocurrencies on its platform, which could add more than $1 billion in revenue by next year. The platform was extremely popular during the pandemic and was the go-to payment processor for online businesses. As a result, PYPL stock is up a massive 110.5% in the past year.
PayPal witnessed massive growth in its peer-to-peer payments category. Payment volume rose 36% in the third quarter, and in October, it saw its highest-volume day ever. Revenue growth posted a significant bump in the last few quarters, which is a trend that is likely to stay for the foreseeable future. Strong partnerships and strategic acquisitions of complementary businesses such as Honey continue to create more upside for investors.
Fintech Stocks to Buy: Fiserv (FISV)
Fiserv is a financial services technology company that offers a full suite of services to small businesses, financial institutions and card processors. It has three operating segments, including payments, merchant acceptance and financial technology. Some of its products, such as TransferNow, are hugely popular among the top American banks. With a solid track record of innovation coupled with strong industry growth, FISV is among the most promising fintech stocks at this time.
Top-line growth prospects remain robust for the company, and it has set out aggressive targets for the next several years. In its third quarter, GAAP revenue was up 21% and 79% year to date. Additionally, adjusted EPS was also up 19%, and free cash flows shot up to $939 million, up 13%. With robust financial positioning and forward revenue growth of roughly 40%, it will be among the best performing fintechs in the coming years.
PagSeguro Digital (PAGS)
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PagSeguro Digital is a Brazilian fintech company leading the way for digital commerce in the Latin American region. It offers a wide variety of online banking services to its users and, similar to Square, has a two-sided platform structure. PAGS stock had an incredible year on the stock market, with 12-month returns of 61.3%.
Earnings results were scratchy early on in the pandemic but soon recovered in the latter half of 2020. In its most recent quarter, payment volumes are up 52.5%, adding roughly 474,000 new merchants into its system. The pandemic led to a marked increase in Brazil’s online financial activity, which has been facilitated by PagSeguro.
Moreover, apart from its payments processing business, its digital bank called PagBank has the most potential for long-term success. It currently has 6.7 million users, with a total addressable market of more than $400 billion. Therefore, PAGS is one of the fintech stocks with many catalysts that provide it with considerable room for sustainable growth in the future.
Fintech Stocks to Buy: StoneCo. (STNE)
StoneCo. is an integrated financial services and payment processor for online merchants and SMEs in Brazil. It started as a payment processor but now provides an array of value-added services. STNE stock quickly became a significant player in the Brazilian payment processing industry.
The Brazilian payments platform stumbled a bit early on in 2020 but is back in the positive territory as far as revenue growth is concerned. Additionally, revenue growth forecasts for 2021 are looking impressive at 61%. The company recently acquired Linx Technologies to provide POS and ERP tools for its merchants. Moreover, the company has significant growth opportunities in its target market of SMEs, where it has a relatively low market share. Therefore, StoneCo. has a lot of potential to expand its revenue in the fast-growing market of Brazil.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.