The stock market is now positive, but not all industries have participated equally. Financial technology (fintech) equities have underperformed, and several remain much below recent highs.
Fintech equities have lagged lately, but that won't last. Today may be a good moment to buy high-quality companies in the category that sell at deeply reduced levels due to indicators that macroeconomic pressures may be lessening. Read on to see why two Motley Fool writers recommend SoFi Technologies (NASDAQ: SOFI) and StoneCo (NASDAQ: STNE) for investors seeking beaten-down fintech companies with explosive returns.
This year, SoFi stock is down 26% and 73% from its high. Jennifer Saibil: Since going public in 2021 through a merger with a SPAC, SoFi has grown rapidly. However, it debuted with a high valuation and collapsed with the market when growth stocks at excessive prices lost appeal. Although it's growing swiftly, its valuation is low.
After reporting strong fourth-quarter results for 2023, the stock plummeted and is currently a bargain at 3 times trailing-12-month sales. In Q4, SoFi's revenue rose 35% to $615 million and adjusted EBITDA rose 159% to $181 million. SoFi reported its first net profit, $48 million, or $0.02 per share, in the fourth quarter. Even better, management expects positive net profits in 2024's first quarter and year.
SoFi added 585,000 accounts and approximately 700,000 products in Q4. New customers and product uptake are increasing revenue, and upselling and cross-selling are maintaining profitability.
Lending is the company's staple, although it's diminishing as a share of the business. SoFi's easy-to-use, all-digital platform attracts students and young professionals, who now have access to a full spectrum of financial goods and services on its app. It's a profitable, upwardly mobile target group that should bring years of organic growth as SoFi subscribers develop, find better jobs, and use the site more.
Why has SoFi stock fallen this year? As it becomes lucrative, investors may value it like a bank stock, which trades lower. However, SoFi is growing faster than most bank stocks. It's a great deal now, but it could rise this year and long-term.
StoneCo is down 6% this year and 83% from its peak. Keith Noonan: Brazil-based fintech StoneCo (NASDAQ: STNE) provides SMBs with payment processing, retail management, and lending services. Lending services used to make up a greater part of the company's revenue, but it suspended operations because it utilized inaccurate data to assess applicants' creditworthiness.
Since StoneCo had many problematic loans, it suffered enormous losses. The company's share price plunged due to this big headwind and other fintech sector headwinds.
Despite the stock's poor performance in recent years, the company's recent momentum is encouraging. The corporation is rebuilding its credit business and increasing its management software unit, but the payment processing unit stands out.
Fourth-quarter SMB payment volume rose 20% year over year. The company's revenue jumped 20% to 3.25 billion Brazilian reals ($650 million) due to higher payments volume. The company's non-GAAP (adjusted) net income climbed 177% to 564 million reals, or $113 million at the current exchange rate.
StoneCo stock fell after its earnings report despite solid results. The fintech specialist's share price is down 6% in 2024 and 83% from its 2021 high.
StoneCo revealed in its Q4 report that founder and board Chairman André Street would not seek reelection and resign. When an influential founder and CEO leaves a company, investors often feel worried, but Street appears to be departing StoneCo strong. Recent company momentum suggests investors should buy the stock's dip for long-term gains.
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