The banking sector has been through a lot lately. The Fed had to step in and bail out some of the biggest names in the industry as they faced a liquidity crunch and a wave of defaults. The ripples in the banking sector have been calming down, with many banks starting to bounce back. However, there are still investors that are wary of a possible recession on the horizon, leaving them hesitant to look into financial technology (fintech) growth stocks. Understandably so, as some banks could still collapse, and even if the Fed does come to the rescue, depositors will be the ones getting their money back, not investors.
That said, the turmoil in the banking sector has caused many fintech names to trade at depressed prices despite solid balance sheets and high growth potential as they tap into new markets and segments that the incumbents underserve.
Moreover, I believe that investing in fintech growth stocks is not as risky as some investors think. The Fed has shown that it is committed to preventing a banking crisis and has ample tools and resources to do so. Even if some fintech names are connected to these banks, they will also be the ones to be rescued.
With that in mind, let’s look at three fintech growth stocks:
SoFi Technologies (SOFI)
SoFi Technologies (NASDAQ:SOFI) is (essentially) an online bank and one of the fastest-growing names in the financial sector. It is unique because SoFi operates entirely online, focusing more on personal loans. This makes the company’s borrower base much more diversified compared to banks that fund startups or risky institutions. Thus, despite SoFi being a “bank,” the risk here is low. Even with the recent Supreme Court ruling, the long-term potential outweighs the risk.
As for the balance sheet, it is among the most robust in the industry. It has accelerating revenue growth of 82.9% in Q4, reaching $1.7 billion trailing twelve months. That’s expected to reach $2 billion at the midpoint this year and $2.9 billion in 2024.
Furthermore, the demand for personal loans continues to grow. With traditional banks growing conservative, it is hard for individuals to get any loans, especially online. That’s a tailwind SoFi can capitalize on in the long run since physical branches are growing less and less popular.
Mastercard (MA)
Mastercard (NYSE:MA) is finally catching the attention of investors as it delivers some of the strongest growth in the fintech industry. Unlike most industries, Mastercard benefits from the rate hikes, and the Fed is likely to stay put at the 5% range for at least a few months. That’ll likely result in even stronger results in the following quarters this year.
The company’s margins are especially compelling, with net margins at 44.7%, turning Mastercard into a cash machine. Operating income slowed slightly but still grew at double digits to 21.6%, reaching $12.3 billion for FY 2022. Revenue growth has also outpaced that of Visa (NYSE:V) and could lead to a more premium valuation if sustained.
It’s a more conservative pick, but I believe the upside potential here is enough to make it a must-buy for a growth portfolio.
PayPal (PYPL)
PayPal (NASDAQ:PYPL) continues to languish below pre-pandemic prices, but it might be time for Wall Street to reverse its sentiment on the stock. PayPal’s financials have turned a corner, and it is back to delivering double-digit growth on the bottom line and a healthy 6.7% growth in its top line.
It is a household name that I don’t expect to stay at these levels for too long. Growth will eventually return to PayPal in the long term. At the same time, one of its biggest competitors, Block (NYSE:SQ), has faced setbacks due to the Hindenburg Research report. Thus, I believe the conditions are ripe for PayPal to resume its growth trajectory in 2023 and beyond.
Furthermore, PayPal is generating strong cash flow, spending most of it on share repurchases. It guided $5 billion in FCF this year, with 75% to be spent buying back shares.
The consensus price target here is above $100, but I believe $150 or higher is possible.
On the date of publication, Omor Ibne Ehsan did not have (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.
