Bank stocks have struggled over the past few years, and the pandemic was particularly damaging. A prime example is Metro Bank, which has seen its share price fall 97% over the last five years, and 20% over the last year. Although this was partly due to accounting errors, the bank has also been faced with large costs, due to its many branches around the UK. While other UK banks, such as HSBC and Lloyds, have fared better, their growth is also very slow. The same cannot be said for fintechs, which have helped revolutionise the banking world over the past few years. With many UK fintechs, such as Monzo and Revolut, still not public companies, here are two US fintech stocks I’d buy today.
PayPal (NASDAQ: PYPL) has gone from strength to strength over the years, with revenues increasing from $10.8bn in 2016 to an expected $25.4bn this year. Over these past five years, the PayPal share price has also managed to rise around 370%. But things have taken a slight downturn recently and over the past six months, the shares have fallen 27%. They’re also down nearly 10% over the past year. This is due to fears that growth is starting to slow amid rising competition.
But while the rising competition is certainly a risk, PayPal is still a market leader in this growing industry. Indeed, in its Q3 trading update, the company still saw year-on-year revenue growth of 13%. It also added 13.3m net new active accounts, demonstrating that customers are still choosing PayPal over other fintechs. A partnership announcement between its subsidiary Venmo and Amazon, is also likely to boost profits when it starts next year.
I equally believe that, like some other fintech stocks, rising inflation is not actually a bad thing for PayPal. In fact, PayPal earns most of its money from taking a percentage of total payment volume on the platform. Therefore, as prices go up, it will also take in more money from these transactions. Accordingly, I’m tempted to add more PayPal shares to my portfolio on the dip.
A new fintech stock to the market
SoFi Technologies (NASDAQ: SOFI) is less well known than PayPal, yet it’s growing at a rapid pace. In fact, in the Q3 trading update, it announced that it had nearly 3m members, a 96% year-on-year increase. It also had net revenues of $277m. This means that FY revenues are expected to total over $1bn, a 60% increase year-on-year. As such, this shows that the company’s growth is rapid, and is the reason why I’m optimistic that SoFi is a real disruptor in the fintech industry. There’s also a high chance that it will be granted a bank charter in the next few months, which should help the company grow revenues at an even quicker pace.
The one concern I have about SoFi is its valuation. Although it’s managed to reach positive adjusted EBITDA, it’s still posting heavy net losses. With a market cap of $14bn, it also has forward price-to-sales ratio of 14, far higher than some other fintech stocks, including PayPal (which has a P/S ratio of under 9) and Square (a ratio of around 8). But SoFi is also seeing quicker growth, and therefore, I’m not overly worried about this high valuation. I may buy more shares for my portfolio.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Stuart Blair owns shares in PayPal Holdings and SoFi Technologies Inc. The Motley Fool UK has recommended Amazon, HSBC Holdings, Lloyds Banking Group, and PayPal Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.