Most of the stock headlines I’ve seen recently are about things like Nvidia (NASDAQ:NVDA) become the largest company in the United States or the S&P500 reaching new records. But not all stocks are doing so well.
This is especially true in the financial technology, or financial technology, sector, where many stocks have fallen significantly from the highs reached during the zero interest rate policy era. And while some fintech stocks certainly raise big red flags for investors, here are three in particular that I think could generate market-beating returns over the next few years.
An uncertain strategy but a massive ecosystem
PayPal (NASDAQ:PYPL) is down about 80% from its 2021 peak, and it’s easy to see why. As the COVID-19 pandemic subsided, membership growth stopped and the company’s path to future profit growth was uncertain. However, the stock could be a great value for those who believe in the power of the PayPal ecosystem and its new management team.
The company has 427 million active users on its platform and has done a great job increasing the engagement of its user base. Actually, PayPalThe average active account now conducts 13% more transactions than a year ago. The company generates more than $5 billion in annual free cash flow and uses almost all of that money to repurchase shares, a good indicator that management considers it a great value.
Speaking of management, PayPal not only has a new CEO, but almost the entire management team has joined the company in the last six months. So far, the team is doing a great job figuring out next steps, like the recent announcement that PayPal is starting an advertising business, and I can’t wait to see how that evolves.
Impressive growth and profitability, with many levers to pull
A banking disruptor SoFi (NASDAQ:SOFI) continues to grow impressively despite a difficult economic climate. Over the past year, SoFi’s membership has grown 44% to more than 8.1 million; the company’s technology platform works well; and the banking side of the business continues to expand its deposit base.
There are several reasons to like SoFi stock as a long-term investment. First, the company achieved profitability under generally accepted accounting principles (GAAP) in the fourth quarter of 2023 and plans to remain profitable from here on out. In fact, management projected earnings per share (EPS) of $0.55 to $0.80 by 2026 and annual growth of 20 to 25% thereafter. With enormous potential to grow its business and add new products over the years, this banking stocks could end up being a bargain at its current price below $7.
The market is not yet convinced
An insurance disruptor Lemonade (NYSE:LMND) has made enormous progress. It now has 2.1 million customers and has increased its in-force premiums by 89% over the past two years. Its customer satisfaction ratings show that the company’s customer-friendly approach to insurance resonates with customers.
Lemonade stock is down more than 90% from its all-time high, and one of the main reasons is that profitability has yet to be achieved, even on an adjusted basis. To be fair, the company’s loss ratios are trending in the right direction, and a $34 million adjusted loss in earnings before interest, taxes, depreciation and amortization (EBITDA) is certainly better than the $51 million loss. dollars it recorded in the first quarter of 2023. Management says the company will produce positive net cash flow in 2025 and ultimately achieve sustained profitability without the need to raise additional capital. But the stock price tells us that investors aren’t convinced.
If Lemonade can meet its profitability goals and continue to grow its business at a rate of over 20%, the stock could be a big winner for patient investors.
What suits you best?
These are generally listed in order from the most stable (PayPal) to the most speculative (Lemonade), and which one is right for you depends on your risk tolerance and goals. Furthermore, it should be emphasized that none among these, the risks or volatility are particularly low. I own all three and think long-term investors will be well rewarded for their patience, but it’s wise to expect a roller coaster ride along the way.
Should you invest $1,000 in PayPal right now?
Before buying stock on PayPal, consider this:
THE Motley Fool Stock Advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now…and PayPal wasn’t one of them. The 10 stocks selected could produce monster returns in the years to come.
Consider when Nvidia made this list on April 15, 2005…if you had invested $1,000 at the time of our recommendation, you would have $801,365!*
Equity Advisor provides investors with an easy-to-follow plan for success, including portfolio building advice, regular analyst updates, and two new stock picks each month. THE Equity Advisor the service has more than quadrupled the return of the S&P 500 since 2002*.
*Stock Advisor returns June 10, 2024
Matt Frankel holds positions in Lemonade, PayPal and SoFi Technologies. The Motley Fool ranks and recommends Lemonade, Nvidia and PayPal. The Motley Fool recommends the following options: Short June 2024 calls at $67.50 on PayPal. The Mad Motley has a disclosure policy.
Prediction: These Stocks Could Be Fintech’s Best Performers Through 2030 was originally published by The Motley Fool
