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Fintech Stocks To Add To Your Portfolio Of The Future

Daniel Laboe

Financial technology is reshaping the way we see money, allowing its users to be more productive and efficient. The 4th industrial is upon us and life as we know it is changing at an exponential rate. It is time to put some money into the future of our economy.

Money, our medium of exchange for goods and services, is reinventing itself in today’s society with fiat currencies being undermined by cryptocurrencies. Money is no longer exemplified by a piece of paper but rather a number on a screen with online and mobile banking.

We live in an age where ease and efficiency are valued. Personal banking has never been easier, with the ability to not only pay all your bills but make store purchases with the only necessity being your mobile device.

Here are a few publicly traded fintech companies that are making the everyday lives of humans a little bit easier.

PayPal PYPL

PYPL, a global leader in digital payment platform, has traded in line with the broader internet software market, gaining 22% year-to-date. Analysts have been becoming increasingly optimistic this stock, raising EPS estimates and pushing PYPL into a Zacks Rank #2 (Buy).

PayPal and its subsidiaries allow consumers and merchants to digitally manage and transfer money in the blink of the eye around the world. Roughly $1 of every $6 spent online is processed by PayPal.

The company has invested roughly $2 billion into fintech startups that PayPal is developing and partnering with to broaden both its scope and scale. PayPal wants to ensure that they stay ahead of the fintech curve through these ventures.

Today PayPal has 286 million active accounts, which has grown every quarter, illustrating 17% year-over-year expansion.  

 

The usage per customer continues to grow as you can see, the number of transactions has grown as consumers realize the advantages of this payment platform.  

PayPal’s acquisition of Braintree in 2013 gave it the renowned Venmo. Venmo combined social media with fintech, and it has gained an enormous amount of popularity among millennials and gen Zs. The ability to digitally pay friends with no fees and post an amusing comment about it at the same time has changed peer-to-peer payment forever.

Venmo was an early adopter and has become a necessity for anyone under the age of 35. No one carries cash anymore, and when friends split meals or a case beer, it is effortless to send the money over via Venmo.

PayPal has an exceptional amount of potential with strong double-digit top and bottom-line growth estimated for the next 2 years. PYPL is trading at a PEG of 2.2x, below the broader internet software sector.

PYPL has just hit its 200-day moving average (green) price. This is a level that has historically been a support for PYPL, consistently bouncing off of it over the last 3 years, which you can see below. It could be time to buy into one of the world’s biggest and best fintech stocks.

Square SQ

Square’s claim to fame is supporting small businesses payment processing which would previously not have had the capability.  Most of you have likely used Square at your local main street businesses, recognized for its sleek hardware design being either a small square plug-in to a smartphone or a lustrous white chip insert block. Square hardware, combined with its cloud-based software allows any business to accept digital payments.

Square has also adopted a peer-to-peer payment app called Cash App that is competing in this overly competitive market with PayPal’s Venmo, Apple Cash, and Zelle, which was started by some of the largest US banks including Bank of America BAC, JP Morgan Chase JPM, and Wells Fargo WFC.

Square has been building out its subscription-based business model that has been yielding the company the substantial margins and exponentially growing its topline with reliable revenue.

The firm’s most recent purchase of Weebly ($365 million in cash and stock mix) has broadened Square’s reoccurring revenue stream. Weebly is a tech company that gives businesses the necessary tools to build out an ecommerce platform and helps the business manage it. Weebly and Square have an overlapping customer base, which should provide significant synergies for the combined company.

Square recently sold Caviar for $410 million (bought for $90 million in 2014) to DoorDash who is integrating Squares API’s and integrating Cash App into its platform.

SQ has only returned investors 8% year-to-date, underperforming both the internet software sector and the broader market. This is due to investors’ concern about decelerating payment processing revenue, but I believe that its reoccurring revenue growth will more than make up for this slowdown.

SQ is currently trading at a 4.8x forward P/S which is below both the firm’s 3-year median and the sector.

This stock has an unbelievably high beta of 3.4, which makes it a shaky investment with market volatility already high. This stock is trading 40% off its all-time high that it hit at the end of Q3 last year. I believe that with its savvy investment tactics and strategic partnerships, it could easily pass this high.

I wouldn’t put a large position on this stock considering its volatility, but it is not trading at a bad price for a long-term play.

Take Away

Fintech is changing the way we see money and making paper cash obsolete. These two stock above are both leading the charge in the evolving financial economy.

PYPL is a buy at its current valuation and positive analyst sentiment. PayPal’s strategic investments have continued to allow the firm to stay ahead of the fintech curve, and I am confident this will continue moving forward.

SQ is a much riskier play with its income statement just recently illustrating a positive bottom-line combined with high volatility. This stock has been lagging due to investors’ concern about slowing payment processing revenues, but I believe that its growing subscription-based revenue will drive this stock to new highs.

 

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