Fintech
3 Cheap Fintech Stocks to Buy Now: May 2024
Companies with improving margins and a large addressable market that guarantees sustained growth
Some sectors benefit from positive factors and the size of the sector has increased sustainably for a decade or more. However, during this period, the best stocks in the sector do not always post gains. There may be intermediate stages of price or time correction.
This currently applies to the fintech sector. Although the overall growth estimate for the sector remains positive, fintech stocks have been in a time or price correction mode. This is an excellent time to accumulate some low-cost fintech stocks for multibagger returns over the next three to five years.
Coming to the potential of the industry, the global digital payment solutions market is expected to grow at a CAGR of 15.2% between 2023 and 2030. By the end of the decade, the market size will be is expected to increase to $24.31 trillion. Therefore, the addressable market is large and there is ample room for growth even in a competitive context.
We are therefore talking about three low-cost fintech stocks, positioned to benefit from the positive factors of the sector.
PayPal Holdings (PYPL)
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PayPal holdings (NASDAQ:PYPL) has moved sideways over the past 12 months and the fintech stock appears undervalued. My opinion is underlined by the fact that PYPL stock trades at a forward price-to-earnings ratio of 15.7.
As we look at the first quarter of 2024 results, there are two key positives to note. PayPal has focused on profitable growth. While revenue growth was modest at 9%, the company reported 300 basis points growth in transaction margin year over year, reaching 4%.
Additionally, PayPal led for free cash flow of $5 billion for the year. For a company that trades at a $68 billion valuation, the potential annual FCF looks attractive. I also expect a sustained increase in cash flows considering the global digital payments market.
Another note is that PayPal reported a liquidity buffer of $17.7 billion as of the first quarter of 2024. As active accounts remain stagnant, it makes sense for acquisitions to spur growth.
Block (QS)
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It was 2021 when To block (NYSE:m2) the stock was trading at its highest near $300. After a prolonged correction, SQ stock bottomed at $39 in October 2023. Currently, SQ stock is trading up 82% at $71. However, the business remains undervalued with a forward P/E ratio of 21. New exposure can therefore be considered at current levels.
Positive business developments pushed the stock higher. For the first quarter of 2024, the company reported revenue growth of 22% year over year to $2.1 billion. Cash App contributed $1.3 billion in revenue, with Square being the other growth driver.
However, a more important factor was the company’s operational performance. For the first quarter of 2024, Block reported an operating margin of 12% compared to a slight operating loss in the first quarter of 2023. Focusing on profitability, SQ stock will likely continue to trend higher.
It’s worth noting that the Square and Cash app had a total addressable market of $205 billion as of 2023. The addressable market continued to swell. This will likely ensure that revenue growth remains solid.
StoneCo (STNE)
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Among the emerging fintech players, Stone Co (NASDAQ:STNE) is an interesting bet for multibagger returns. STNE stock has remained largely sideways over the past 12 months and trades on a forward price-to-earnings ratio of 11.5. Valuations point to a big breakout to the upside.
In summary, StoneCo focuses on providing fintech solutions in Brazil. Financial services solutions contributed 88% of revenues, with 12% coming from software solutions. Between 2021 and 2023, the company’s financial services segment experienced revenue growth at a CAGR of 60%. Over the same period, adjusted earnings before tax (EBT) growth was 476%. StoneCo has been a story of margin expansion in its core business.
Another point to note is that the Brazilian market is large and underpenetrated. This gives StoneCo the ability to grow at a stellar pace. To put things in perspective, the company estimates the total addressable market to be 100 billion Brazilian reals. Therefore, with revenue growth and operating leverage, cash flows are likely to be robust in the coming years.
As of the date of publication, Faisal Humayun 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 InvestorPlace.com Guidelines for publication.
Faisal Humayun is a senior research analyst with 12 years of experience in credit research, equity research and financial modeling. Faisal has authored more than 1,500 securities-specific articles with a focus on the technology, energy and commodities sectors.