Looking for rapid growth? Discover fintech stocks. These companies combine the huge financial markets to address with the high growth rates of technology stocks. It’s not uncommon to see fintech stocks double or even triple in value in a single year.

Two of the best-known fintech stocks today are To block (NYSE: SQ) e PayPal (NASDAQ:PYPL). Both have great upside potential, but one stock in particular can offer truly enormous returns.

Look for this feature for fintech investment success

Looking for maximum upside fintech stocks? Find companies willing to take risks to stay ahead of the competition.

When it comes to successful fintech investing, it’s the disruptors that make the biggest mark. After all, tons of financial firms are integrating technology into their offerings. Nearly every U.S. bank today, for example, has a smartphone app you can use. But the vast majority of these apps aren’t truly disruptive. Most are simply imitations of what a real fintech business introduced years ago.

Just look at what PayPal accomplished in its early days. Founded in 1998, the company was created to bring digital transactions to the masses. In the late 1990s, online shopping was still in its infancy, and Internet users were wary of entering their payment information online. Systematic trust was low and PayPal stepped in to provide a solution. Through PayPal, anyone can shop online safely, knowing that if there was a problem, PayPal would be there to support you. This innovation was so promising that eBay purchased PayPal in 2002 for $1.5 billion. At the time, over 70% of eBay auctions already accepted PayPal as a payment method, with a quarter of all customers choosing to use the service.

In the years since, PayPal has grown its user base from tens of thousands to hundreds of millions. Today the company boasts more than 400 million active accounts. But that’s where the good news ends. PayPal’s active user base has shrunk as of the fourth quarter of 2022. Competition has grown significantly since the company was spun off from eBay in 2015, and PayPal simply hasn’t been able to replicate the innovative success of the past. Its stock price has reflected this reality, adding just 76% in value since 2016. Block shares, meanwhile, are up nearly 800% over the same period. As we will see, this is due to Block’s ability to practice the greatest rule of fintech investing: choosing companies willing to go where few have gone before.

Block has this big advantage over PayPal stock

Take a look at the charts below and you’ll quickly understand why Block is a superior stock to PayPal right now. Since 2016, PayPal’s annual revenue growth has averaged about 16%. Block, for comparison, averaged 46%, more than triple PayPal’s average. Also note that PayPal’s current sales growth rate is closer to 8%, while Block’s is below average at 25%. But Block’s revenue growth rates appear to simply be returning to normal levels after a year or two of above-average levels. PayPal’s slow growth, meanwhile, comes after years of merely average results, suggesting the business is deteriorating.

The story continues

Block definitely has the size advantage in terms of growth rates. After all, it’s easier to grow faster as a small business. But today, both companies are approaching similar sizes, yet Block continues to grow many times faster than PayPal. As we will see, this is the result of continued investment in bold innovations.

What Block has done much better than PayPal for years is enter new, emerging categories. Bitcoin it’s a great example. The company changed its name to Block from Square in 2021 to reflect its commitment to blockchain technologies. Through its merchant payment system and peer-to-peer monetary service, Cash App, the company was one of the first to bring cryptocurrencies to the masses. Today, more than 20 million Cash App users own Bitcoin via Block. Last quarter, Block customers purchased more than $2.5 billion in Bitcoin, up 37% year over year.

To be sure, PayPal has also invested in cryptocurrencies. Its Venmo app, for example, allows users to buy and sell Bitcoin. But Block’s commitment to emerging opportunities like this is undeniable. The entire company is named after blockchain technologies. And this month, Block revealed that it will reinvest 10% of its Bitcoin profits into Bitcoin itself. It remains one of the few publicly traded companies to invest directly in cryptocurrency.

Currently, Block has a smaller market capitalization than PayPal: $44 billion versus $67 billion. It also has a lower valuation, trading at 1.9 times sales versus 2.3 times sales. If I bet on one of these fintech superstars, I choose Block: the smallest, cheapest company with superior growth prospects.

Should You Invest $1,000 in Block Right Now?

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Ryan Vanzo has positions in Bitcoin. The Motley Fool has positions and recommends Bitcoin, Block and PayPal. The Motley Fool recommends eBay and recommends the following options: July 2024 $52.50 short calls on eBay and June 2024 $67.50 short calls on PayPal. The Motley Fool has a disclosure policy.

1 Fintech stock to buy hands-free and 1 to avoid was originally published by The Motley Fool

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