Fintech
3 Sorry Fintech Stocks to Sell in May While You Still Can 3 Sorry Fintech Stocks to Sell in May While You Still Can
The fintech sector, often celebrated for its innovative approach to traditional financial services, has brought numerous startups to the fore with promises of high returns and disruptive potential. However, amid these success stories, some fintech companies have failed to live up to expectations, saddled with operational challenges, regulatory pressures and fierce competition that have stunted their growth and eroded investor confidence.
According to KPMG, the year 2023 marked a decline in global fintech investment during 2023, with the lowest investment levels and number of deals since 2017. Several factors have contributed to this decline, including high interest rates, persistent inflation, geopolitical tensions in regions such as ‘Ukraine and the Middle East and cautious investor sentiment towards valuations and exit opportunities.
As the market faces increasing volatility, discerning investors must critically evaluate their portfolios and identify which ones fintech stocks could be poised for a recession. It is essential to recognize these vulnerable securities early and consider divesting before their issuance leads to significant losses. Here are three fintech stocks that, given their disappointing performance and bleak outlook, are prime candidates to sell off this May.
SoFi (SOFI)
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SoFi (NASDAQ:SOFI) has been under the scrutiny of investors and analysts over the past year, particularly due to its exposure to changing macroeconomic conditions. SoFi’s business model is particularly sensitive to changes in interest rates and the financial health of consumers.
The bearish view on SoFi stems from increasing defaults on consumer loans. Added to this are expectations of a rate cut by the Federal Reserve, which poses a threat to SoFi’s net interest income.
In response to these challenging conditions, SoFi has taken a conservative approach to lending, focusing on maintaining quality and managing risk. This has resulted in rigorous underwriting standards and a cautious outlook on future lending activities.
Despite a 28% year-to-date decline in its stock price, SoFi recently reported earnings that beat expectations for 2024. For the first quarter of 2024, SoFi reported EPS of $0.02, beating estimates of $0.01. Revenues totaled $580.65 million, an increase of 26.18% year-over-year.
Currency base (COIN)
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CoinBase (NASDAQ:CURRENCY) made a surprising debut on the NASDAQ in 2021, with its shares initially rising to highs of $350. However, the excitement was short-lived as the broader cryptocurrency market faced a downturn, with Bitcoin retreating from record highs.
Coinbase has worn out to maintain constant profitability. The company’s revenue streams are highly dependent on transaction volumes which fluctuate with cryptocurrency market conditions.
Regulation remains a key concern for Coinbase, as it does for all players in the cryptocurrency industry. Coinbase has had to address these challenges by adapting its business practices to comply with the regulatory requirements of different jurisdictions.
Despite the significant drop compared to the peak prices, those of Coinbase assessment remains elevated relative to its earnings and growth prospects. The stock’s trading multiples suggest that high future growth is already priced in, leaving little room for upside surprises. This discrepancy between valuation and potential earnings growth makes COIN a less attractive investment at current levels.
Start (UPST)
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Start (NASDAQ:UPST) aims to revolutionize the personal lending industry by leveraging advanced algorithms to provide fairer and more accessible lending options. However, recent findings and forward-looking projections suggest that the path ahead will be bumpy.
The market reaction to Upstart’s financial health has been decidedly negative, with the stock down about 40% since the start of 2024.
In response to challenging market conditions, Upstart has climbed has supported some of its growth initiatives and focused on improving its core AI lending platform. Additionally, Upstart has tightened its lending criteria to mitigate the risk associated with a potential increase in default rates, a prudent move given the uncertain economic outlook.
Start reported solid financial results for the first quarter of 2024, with total revenue of $138 million and net revenue of $128 million. The company also made significant cuts to fixed expenses, reducing personnel-related expenses by approximately $20 million annually.
As of the date of publication, Mohammed Saqib 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.
Mohammed Saqib is a research analyst with experience in equity research and financial modeling. He has extensively covered listed stocks in the technology sector using fundamental analysis as the cornerstone of his approach. Currently pursuing a master’s degree in finance, Saqib is working towards obtaining his CFA charter to further increase his experience in the field.