Many of the market’s top payment stocks have been caught flat-footed amid the past year run in tech stocks. Undoubtedly, some of the top innovators in payments are leveraging financial technology in a way that makes it easier and more convenient for consumers to transact.
By taking friction out of the digital checkout process and improving upon various aspects of security, the fintech firms look incredibly well prepared for a potential spending spree the next bull market could kick off.
Sure, payment companies may not be doing anything groundbreaking. However, the continued shift towards digital transactions still holds long-term opportunities for the firms that have the means to claw the most market share. Innovative tech and integration with other financial services act as major growth drivers to help payment firms gain the upper hand.
Even as shares of the formerly hot fintech firms struggle to gain steam, they’re continuing to tap into new-age technologies (think generative AI, crypto wallets and all the sort), which should help solidify the longer-term growth thesis.
Visa (V)
Visa (NYSE:V) stock saw its year-to-date gains be completely wiped out following its latest correction. For such a dominant payments behemoth, it was also a bit concerning to see third-quarter sales come in short of analyst estimates.
Payment volumes have experienced a subtle slowing of pace, even as consumer spending stayed mostly resilient amid inflationary pressures. And while Visa still has a lot going for it, with its front-row seat to the worldwide shift to digital payments, one can’t help but wonder if its golden age of growth is now behind it.
Some analysts, like those at Bank of America, see limited upside in Visa and Mastercard (NYSE:MA) amid a “more volatile and unpredictable” environment. At writing, V stock sits at 27.8 times trailing price-to-earnings (P/E), a cheap level for Visa standards. That said, if these sales misses keep on coming, perhaps shares could get even cheaper.
Mastercard (MA)
Mastercard stands out as a credit card firm with a bit more of a tech edge to it. In recent years, the company has been investing a great deal on its digital transformation to better serve and protect its cardholders.
Most notably, the company’s fraud-fighting AI tech can spot fishy trends at a transaction level. Such gen AI-leveraging fraud detection tech won’t just save Mastercard and its cardholders a few bucks; it could set a new standard in the digital payments market. Looking ahead, I expect Mastercard to continue teaming up with and acquiring intriguing fintech startups to bolster the tech portfolio.
With MA stock down just north of 10%, the $407 billion payments firm finds itself in a similar slump as its long-time rival Visa. While Bank of America is also quite muted on the name in this environment, I view Mastercard’s tech expertise as worth the added premium (30 times forward P/E).
Block (SQ)
Block (NYSE:SQ), formerly Square, is an even bigger slump than the top credit card firms right now. It’s been a slog for SQ stock since its great crash of 2021-22. And while enthusiasm for the crypto- and blockchain-savvy fintech will probably never return to 2020 levels, I continue to find the name one of the most affordable stocks in the payment waters today.
Of course, there’s a legendary founder, Jack Dorsey, who’s still running the company. Looking ahead, he wants to make huge changes to Block in an attempt to bring back some of the greatness. Recently, Dorsey announced a major overhaul of the firm that will involve a reorganization “by function,” a move that he hopes will bring things back to how they were back in the fintech’s earlier days.
Though the Block (or Square) of old is likely gone for good, I do like the new Block a heck of a lot better. It’s leaner, more efficiency-driven and perhaps it will be more streamlined after the company restructures itself. At 1.66 times price-to-sales (P/S), I view SQ stock as one of the most affordable payment stocks on the market.
On the date of publication, Joey Frenette 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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
