Fintech stocks skyrocketed during the peak of meme and growth stock rallies in 2021, but many of these stocks collapsed over the next two years as interest rates rose. Such higher rates have dampened economic growth and lending, while higher yields on fixed-income investments such as CDs have drawn investors away from riskier growth stocks.

But with interest rates set to stabilize and potentially decline in coming quarters, investors should consider buying some out-of-favor fintech stocks that now appear undervalued relative to their growth potential. I believe Nu Holdings (NYSE:NU), Start (NASDAQ: UPST) e To assert (NASDAQ: AFRM) checks all the right boxes, making these three fintech stocks potential buys right now.

Image source: Getty Images.

1. Nu Holdings

Nu is an online bank serving more than 100 million customers in Brazil, Mexico and Colombia. It provides checking and savings accounts, credit cards, business loans, investment tools, payment services and insurance policies.

A digital-only approach has allowed it to expand its business at a much faster pace than its brick-and-mortar competitors, and it is now the fourth largest financial institution in Latin America.

In constant currency terms, Nu’s revenues increased 168% in 2022 and 63% in 2023. In the first quarter of 2024, its revenues grew another 64% year-over-year while the total number of customers increased increased by 26%.

Average monthly revenue per active customer (ARPAC) has also increased over the past year as average costs to serve each customer have decreased. Its gross margins also remained well above 40% while its net interest margins increased.

Analysts expect Nu’s revenue and adjusted EPS to grow 47% and 68%, respectively, in dollar terms, for the full year. These growth rates are impressive, but its shares still look surprisingly cheap at 27 times forward earnings and 5 times this year’s sales.

Its ratings are currently compressed by concerns about inflation and currency devaluation in Latin America, but are expected to continue to rise as income levels and internet penetration rates rise across the region.

2. Get started

Upstart manages a Powered by artificial intelligence Online lending platform that approves loans for banks, credit unions and car dealerships. But instead of simply reviewing a customer’s FICO score Right Isaac (NYSE: FICO), credit history or annual income, digs deeper and analyzes nontraditional data, including educational qualifications, standardized test scores and previous jobs, to approve a broader range of loans for younger and older customers. low income. with limited credit histories.

The story continues

Upstart’s revenue fell 1% in 2022 and 39% in 2023. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) also turned negative in 2023. That slowdown was primarily caused by increase in interest rates, which pushed consumers to take out fewer loans. Its lending partners were also offering fewer loans on its marketplace, so Upstart had to start bringing more loans onto its balance sheet to make up the difference.

But in 2024, analysts expect Upstart’s revenue to rise 5% as interest rates decline. In 2025, its revenue is expected to grow 29% as adjusted EBITDA returns to positive.

It’s a bright perspective for a stock that trades at less than 4 times this year’s sales. So it might be a good idea to load Upstart actions before the macro environment improves.

3. Affirm

Affirm’s Buy Now, Pay Later (BNPL) platform breaks purchases into smaller installment plans through microloans. This is an attractive choice for low-income customers who can’t get approved for traditional credit cards, and it’s also a popular alternative for merchants who pay high fees for card-based payments.

Revenue increased 55% in fiscal 2022 (ending June 2022), but grew only 18% in fiscal 2023 as inflationary headwinds curbed consumer spending and more competitors entered the BNPL market .

Persistent losses and high leverage (from its own borrowing) have also made it an unattractive investment as interest rates rise. However, over the past year, revenue and gross merchandise volume (GMV) growth have accelerated as adjusted operating margins expanded.

It attributed that acceleration to its new merchant offerings, growing adoption of its Affirm Card (which adds BNPL options to a debit card), and a warmer macro environment. Analysts expect its revenue to rise 43% in fiscal 2024 and 21% in fiscal 2025 as stabilization continues.

Based on those forecasts, Affirm’s stock looks historically cheap, accounting for just 3x next year’s sales. And it could recover as interest rates fall and the BNPL market heats up again.

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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Upstart. The Motley Fool recommends Fair Isaac and Nu Holdings. The Motley Fool has a disclosure policy.

3 Incredibly Cheap Fintech Stocks to Buy Now was originally published by The Motley Fool

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