It’s no question that the fintech segment is a disruptive space within the market, transforming the way financial services activities such as banking, lending and credit cards are performed using computer programs and other technologies. The Global X FinTech ETF has been able to outpace the rest of the market with 30% growth year-to-date vs the S&P 500’s 16% gain. With noncash transactions expected to surpass $1 trillion in 2023, the space appears to only be getting bigger.
Typically, a few large players like Visa (V), MasterCard (MA) and Square (SQ) come to mind when investors think of fintech stocks. That being said, there are lesser known fintech stocks that analysts believe make compelling investments.
Let’s take a closer look at 3 under the radar fintech stocks garnering support from Wall Street analysts.
BlackLine Inc. (BL)
This fintech stock goes head to head with Oracle (ORCL) and has Gartner ranking it as a leader in “financial close solutions”.
BlackLine’s innovative software-as-a-service (SaaS) platform automatically processes data, giving firms the ability to track ongoing operations in real-time. This saves time and resources by eliminates the need to have someone perform tedious accounting tasks manually.
Companies of all sizes are recognizing BL’s potential. In its most recent quarter, BL added 106 new customers with the total number now reaching 2,813. Not to mention its revenue surged 26% year-over-year, helping the company make strides towards profitability.
“Q2 was a good quarter driven by strong demand for our solution and a record number of large deals. BlackLine continues to be selected as the strategic partner of choice among organizations undergoing large, financial transformation projects. With this as our foundation, we will continue to focus on driving growth and delivering value to our customers.” CEO Therese Tucker said on August 1.
The good news doesn’t end there, with BlackLine announcing a new tiered alliance program for consulting partners in August.
All of this has been factored into one analyst’s bullish thesis. Robert Oliver, a five-star analyst according to TipRanks, believes that the large total addressable market lends itself to strong long-term growth potential. On August 2, he reiterated his Buy rating and raised the price target from $53 to $55. The Robert W. Baird analyst believes shares could gain 8% over the next twelve months.
With 2 Buy ratings vs 1 Sell received over the last three months, the word on the Street is that BL is a ‘Moderate Buy’. Its $53 average price target suggests 3% upside potential.
Envestnet Inc. (ENV)
Envestnet stands to change the way financial advisors interact with their clients. Its flagship product provides a wealth management platform that integrates the software and services used by advisors.
ENV has seen an impressive 42% gain in the last three years thanks to organic growth as well as its acquisition of analytics and AI company Wheelhouse back in 2016 and its partnership with BlackRock in 2018.
While the company’s August 7 earnings release revealed that it had beaten EPS estimates in its last four quarters, investors were less impressed when it came to the slight revenue miss. Management attributes the shortcoming to a drop in subscription and licensing revenue.
CEO Judson Bergman tells investors to be patient as it will take time for recent investments such as the acquisitions of PortfolioCenter in April and MoneyGuide in May to pay off.
Jefferies analyst Surinder Thind agrees that investors shouldn’t be scared off by weaker Q2 results. “While the updated revenue guide is sure to disappoint, it does not signal a change in fundamentals,” he explained on August 8. As a result, the four-star analyst reiterated his Buy rating and raised the price target from $65 to $76. Thind believes shares could soar 34% in the next twelve months.
The consensus among analysts is that ENV is a ‘Moderate Buy’. Its $75 average price target indicates 33% upside potential.
Green Dot Corporation (GDOT)
The last fintech on our list is unique in that it serves customers who either don’t have or can’t qualify for credit cards or checking accounts. Its strategy of catering to a customer base with a less reliable financial track record might not seem logical, but there is a substantial market for these services within the “underbanked” community.
While the company is one of the riskier stocks we highlight, GDOT was able to post a second quarter earnings beat on August 7. EPS reached $0.90, exceeding the consensus estimate by 43%. However, GDOT lowered its full year guidance based on declining sales of its legacy prepaid credit card as well as a later launch date for its banking-as-a-service (BaaS) platform which the company has invested $60 million in.
GDOT has changed its strategy, shifting focus away from its legacy products to expanding the BaaS segment. This move weighed on earnings and has caused a sense of uncertainty among investors.
That being said, Jeff Cantwell, a five-star analyst, argues that it will take time for this shift to translate into revenue. “The company is in the midst of a painful model transition but the bad news is now baked into the shares. We believe Green Dot's risk/reward looks favorable at current levels following the recent selloff,” he explained on August 9.
He adds that the company’s new products such as its savings account with a 3% annual yield rate could be the growth driver it needs. As a result, the Guggenheim analyst upgraded GDOT from a Hold to a Buy and set a $36 price target, implying 18% upside.
All in all, the Street takes a slightly more cautious stance on GDOT. It has a ‘Moderate Buy’ analyst consensus and a $41 average price target, suggesting 36% upside potential.