The fintech industry has been booming in the past few years, as more people have begun relying on digital platforms for banking, payments, investing, and other financial services. The global fintech market is expected to reach $556.6 billion by 2030, according to a report by Grand View Research.
Still, not all fintech stocks will succeed in this competitive and dynamic environment. Many fintech players need to deal with slowing customer acquisition growth and compressing margins in this tough economic climate. Other fintech stocks have already appreciated so much in the past 12 months rendering them overvalued and ripe for a sudden devaluation.
Below, I will examine three fintech stocks that are ticking time bombs in September 2023. Ultimately, these stocks feature weak fundamentals, overvalued valuations, or negative catalysts that could trigger a sharp decline in their share prices.
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Payoneer (NASDAQ:PAYO) is a global payment platform, enabling businesses and freelancers to send and receive money across borders. The company went public in June 2021 through a SPAC merger, but the stock has plunged by more than 34.6% since its November 2021 high of $9.38 a share. The reason is most likely due to the disappointing profitability performance of Payoneer has given investors over the past years. Sure, revenue growth has remained high with Y/Y growth above 30.0% in both 2021 and 2022, but also in those years the global payments platform reported both negative EBITDA margins and net margins.
It appears in 2023, net income has finally reached an inflection point and ended up positive in the first and second quarters. Nonetheless, despite margin improvements, market forces are not playing into the stock’s favor. Shares are still trading around 34.1x forward earnings, which is still expensive to anyone paying attention to trading multiples. Thus, Payoneer is a fintech stock to definitely avoid for now.
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Another stock to steer clear of is Robinhood (NASDAQ:HOOD), a popular online brokerage platform that offers commission-free trading of stocks, options, cryptocurrencies, and ETFs. The company began trading on the Nasdaq in late-July 2021 with an opening price of $38.00 a share, but the stock has definitely seen better days, currently trading at $9.68 a share.
This makes sense given the way the company has been embroiled in lawsuits and regulatory controversies in the past. For instance, Robinhood agreed to pay $65 million to the SEC and $70 million to FINRA for misleading customers and causing widespread outages. The company also disclosed that it received inquiries from the SEC, the DOJ, and state regulators regarding its trading restrictions on certain stocks during the GameStop saga in January 2021.
Robinhood also faces intense competition from other online brokers such as Charles Schwab (NYSE:SCHW), E*Trade, and Fidelity (NYSE:FIS), as well as new entrants such as SoFi (NASDAQ:SOFI). Robinhood’s top-line growth is relatively inconsistent and growth prospects uncertain, especially when its core user-base of young and inexperienced traders could lose interest or switch to other platforms, Robinhood is a fintech stock public equities investors should probably stay away from.
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Affirm (NASDAQ:AFRM) is the third stock investors should consider shunning. A leading provider of buy now, pay later (BNPL) services, this fintech platform allows consumers to split their purchases into interest-free or low-interest installments. Moving away from the general criticism regarding of BNPL platforms, which include their lack of transparency and encouragement of consumers to spend money they don’t necessarily have, Affirm is facing a slightly different issue. To provide these kinds of flexible payment options, the fintech company has to deal with its own funding costs which are tied to current interest rates. Ultimately, Affirm’s management team expect higher interest rates to weigh on the company’s margins in the near future which could dent earnings prospects.
Not to mention, shares have already risen 109.1% year-to-date, stretching Affirm’s valuation to unacceptable levels. While the efficacy of BNPL platforms remains in limbo and Affirm’s valuation too high, current shareholders investors should find other opportunities in the space instead of keeping the stock in their portfolios.
On the date of publication, Tyrik Torres did not have (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 the InvestorPlace.com Publishing Guidelines.
Tyrik Torres has been studying and participating in financial markets since he was in college, and he has particular passion for helping people understand complex systems. His areas of expertise are semiconductor and enterprise software equities. He has work experience in both investing (public and private markets) and investment banking.
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