Financial disruption is pervading the banking sector as fintech stocks to buy take on traditional banks. Indeed, these companies are offering superior value and gradually grabbing market share. Even Jamie Dimon, CEO of JPMorgan Chase (NYSE:JPM), opines that fintechs are a significant threat to traditional banks.
Fintech has been integrated into the modern financial system in many ways. Today, these platforms offer peer-to-peer transfers, checking and savings accounts, loans, bill payments, direct deposits, stock trading and other digital wallet services. The convenience and ease of use of these products have attracted millions of users.
Another factor behind the widespread adoption has been their value proposition. For instance, since most fintech companies have no physical branches, they inherently have a lower cost structure than banks. Thus, they typically offer higher yields than traditional banks.
The following fintech stocks to buy provide compelling opportunities to capitalize on the digital financial revolution. They offer value and are poised for significant growth.
PayPal (PYPL)
PayPal (NASDAQ:PYPL) is one of the fintech stocks to buy that is substantially undervalued. After abnormal growth during the pandemic, sales growth has moderated. As a result, investor sentiment has soured on the stock, with little recovery since the 2022 bear market. However, this company is a growth stock at a reasonable price.
The key driver of PayPal’s long-term growth is the expansion of the payments market. Statista forecasts digital payments growth at a 9.52% compounded annual growth rate between 2024 and 2028. Therefore, PayPal, already one of the largest players, can grow revenues even with more competition.
Secondly, now that new CEO Alex Chriss has taken charge and appointed new leadership, the uncertainty cloud has cleared. To this end, the new team has pledged to maintain profitable growth.
So far, results have underscored that PayPal remains a growth business. For instance, the company reported 13% total payment volume growth and 24% EPS growth in 2023. Furthermore, Q1 2024 results showed that TPV increased 14% year-over-year (YoY).
As of this writing, PayPal is priced for no growth at 14 times forward earnings. The undervaluation is severe and presents upside. Over the long term, the growth in digital payments will drive revenue growth.
SoFi Technologies (SOFI)
Over the past month, SoFi Technologies’ (NASDAQ:SOFI) stock price has significantly diverged from its fundamentals. Despite impressive Q1 2024 results, the stock has fallen toward 52-week lows, presenting a buy opportunity.
There are several reasons why it’s one of the top fintech stocks to buy. Regarding growth, Q1 2024 adjusted net revenue was $580.6 million, up 26% YoY, the 12th consecutive quarter of over 25% growth. The fundamental momentum continued across its segments. Although lending revenues declined 2% YOY, technology platform and financial services showed impressive growth.
Financial services revenue was $150.6 million, growing 8.2% quarter-over-quarter and 86% YOY. Additionally, more customers subscribed to its technology platform in the quarter. As a result, revenue in the segment increased by 21% YOY.
Secondly, its diversification efforts away from lending are bearing fruit. In the quarter, financial services and technology platform segments made up 42% of adjusted net revenues. Besides, the company plans to finish the year with 50% of revenues from these segments.
Thirdly, the company’s recent financial actions will save about $40 to $60 million in dividend payments and interest expenses. These actions have also reinforced the balance sheet for long-term growth. At the end of Q1, SoFi had 8.1 million members. Its broad product offering will attract more members going forward.
Shift4 Payments (FOUR)
After declining from $85 to below $60, Shift4 Payments (NYSE:FOUR) has become an interesting buyout candidate. Recent transactions highlight the significant discount, making it one of the top fintech stocks to buy.
Benchmark analyst Mark Palmer draws a parallel to the recent acquisition of Nuvei (NASDAQ:NVEI). Advent International, a private equity-focused firm, acquired Nuvei for 11.3 times the expected fiscal year 2024 EV/EBITDA. In contrast, FOUR stock trades at a 2024 EV/EBITDA of about 8.2. The discount is even more profound considering Shift4 will grow its top and bottom line faster, per analyst estimates.
Another analyst, Redburn Atlantic’s Dominic Ball, also agrees that the probability of an acquisition has increased. The stock’s recent underperformance compared to other peers has only made it more attractive.
Indeed, earlier this year CEO Jared Isaacman disclosed that the company had received multiple buyout offers. However, it rejected all offers, stating they severely undervalued the company. Shares have fallen further since, which means substantial gains potential if a deal were to happen.
Shift4 Payments has an enviable merchant base any acquirer would be interested in due to the distribution reach it offers. At 16 times forward earnings, this fintech stock is too cheap. Founder CEO Jared Isaacman could soon return to the market to sell the company.
On the date of publication, Charles Munyi 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.
