With high interest rates, many investors are wary of putting their money into fintech stocks. But I believe some promising options are perfectly positioned to rebound strongly when rates eventually drop again.
Fintech companies saw incredible growth during the pandemic as digital banking and contactless payments became nearly ubiquitous. However, as Covid-19 fears have faded and people return to normal spending habits, fintech growth has slowed. Additionally, high interest rates have made these high-multiple stocks less appealing. This one-two punch has beaten down fintech stock prices.
But in my view, this presents a buying opportunity. When rates likely decline in the latter half of 2024, fintech companies will be primed for another major growth phase. Cash-flush banks will likely partner with innovative fintechs, and digital banking and payments will continue gaining market share. Let’s take a look!
MoneyLion (ML)
As a leading fintech providing financial advice, lending and investment services to middle-class Americans, I’m very bullish on MoneyLion (NYSE:ML). This company is nearing profitability and delivering impressive revenue growth even in a challenging macro environment.
In Q3 2023, MoneyLion grew revenue by 24% year-over-year to $110 million. With expected top-line growth of around 20% annually going forward, this fintech disruptor has substantial momentum. Yet surprisingly, shares trade at just 1.3x forward sales — a bargain valuation that underappreciates MoneyLion’s growth prospects.
I believe MoneyLion is perfectly positioned to capitalize as economic conditions improve and consumers ramp up borrowing activity again. The company’s lending products and personal finance tools cater directly to the underbanked. And with rates inevitably dropping during the next downturn, lending volumes should surge.
With Wall Street underestimating this fintech innovator, MoneyLion offers one of the best risk-reward ratios among small-cap growth stocks today. The market offers investors a rare opportunity to buy into a disruptive, rapid growth story at value territory multiples.
SurgePays (SURG)
For investors searching for value opportunities in the underfollowed fintech space, look no further than SurgePays (NASDAQ:SURG). This niche company provides prepaid wireless plans, reloadable debit cards and other financial services to the underbanked demographic.
While SurgePays is not the fastest-growing fintech, its profitability and rock-bottom valuation make shares compelling. SurgePays reported its highest-ever net income of $7.1 million and EBITDA of $7.5 million in Q3 2023. And despite a slight dip in Q3 2023 revenue, SurgePays achieved a substantial increase in gross profit, reaching $10.5 million.
SURG is almost absurdly discounted, trading at less than 5x earnings and at 1x sales, especially considering its solid balance sheet. SurgePays holds $12.7 million in cash against only $5.5 million of debt.
Recent equity offerings have concerned some investors. However, raising capital to acquire ClearLine Mobile is a savvy strategic play that will create shareholder value over the long run. This overlooked microcap fintech has ample room for expansion.
StoneCo (STNE)
As one of Brazil’s leading financial technology innovators, I have sky-high conviction in StoneCo (NASDAQ:STNE) to deliver market-crushing returns. After navigating some company-specific headwinds in 2021, StoneCo has rebounded strongly. Its foundation appears rock-solid today.
StoneCo provides payment processing, software, banking and lending solutions to Brazilian merchants across omnichannel platforms. Boosted by a stabilizing Brazilian economy, StoneCo achieved terrific Q3 2023 results — more than doubling net income while growing revenue by 34% to $643 million.
With analysts forecasting 34% top-line growth (likely more when dollarized) and 178% EPS growth for all of 2023, the best is yet to come. Consensus estimates call for double-digit revenue and earnings growth annually over the next three years. Yet, StoneCo trades at just 18x forward earnings — a cheap level for a high-quality fintech growing this quickly.
Given Brazil’s successful fight against inflation and additional expected rate cuts, I foresee StoneCo beating estimates and potentially even raising guidance later this year. After rallying over 79% in the past year, this turnaround story still has a long runway for outperformance.
On the date of publication, Omor Ibne Ehsan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
