Fintech stocks are companies that utilize technology to provide and enhance their financial services. These businesses have grown significantly as digitization and artificial intelligence (AI) have advanced. They have disrupted traditional financial systems of lending, borrowing, and investing.
The ongoing digitalization of financial services presents a huge opportunity for fintech companies, particularly those with scalable business models. Here are two fintech stocks with significant growth potential, based on their Street-high price target, and notable risks for investors willing to take them.
#1. Block
Founded in 2009, Block (SQ) (formerly known as Square) is a financial services and technology company known for its digital payment solutions. Block has since expanded into other areas of financial technology, such as cryptocurrency, digital wallets, and merchant services.
Valued at $39.8 billion, Block stock has dipped 20.8% year-to-date, compared to the S&P 500 Index's ($SPX) gain of 13.4%.
The company primarily operates via two platforms. Cash App remains one of Block's most important segments. It provides peer-to-peer payments, banking services, stock trading, and cryptocurrency transactions, making it an adaptable platform for consumers. The company reported a 13% increase in monthly active users to 24 million in the second quarter. The segment's revenue and gross profit increased by 12% and 23% year-over-year, respectively.
Merchants can use Block's Square ecosystem to process payments and manage their businesses. The company continues to innovate in this space, launching over a dozen new products in the second quarter. Square's revenues and gross profit increased by 9% and 15%, respectively. Square's ability to serve small and medium-sized businesses remains a significant competitive advantage for Block.
In the second quarter, total revenue jumped 11%, driven by growth in both segments. Net income surged by 91.1% to $195 million.
The company also has a few other segments, including Spiral, which focuses on Bitcoin development and adoption, and TIDAL, a global music streaming service platform. Block's core businesses, Cash App and Square, as well as its other offerings, are well-positioned to capitalize on current trends in digital payments, e-commerce, and blockchain technology.
With a strong balance sheet of $9.5 billion in cash, cash equivalents, restricted cash, and investments in marketable debt securities, Blocks is also financially equipped to finance its growth initiatives. In addition, the company generated $1.43 billion in free cash flow during the quarter.
Analysts covering Block expect revenue and earnings to rise by 12.9% and 96.6%, respectively, in 2024. Furthermore, revenue and earnings could increase by 11.4% and 28.5%, respectively, in 2025. Valued at 18 times forward 2024 estimated earnings, SQ appears to be an affordable buy for a hypergrowth stock.
Overall, on Wall Street, Block stock is a “strong buy.” Out of the 37 analysts covering SQ, 27 have a “strong buy” recommendation, two say it's a “moderate buy,” six rate it a "hold,” one recommends a “moderate sell,” and one says it’s a “strong sell.”
The analysts' average price target of $87.18 implies a potential upside of about 42.4%. Its Street-high estimate of $100 suggests the stock could potentially rally by 63.3% in the next 12 months.
#2. SoFi Technologies
SoFi Technologies (SOFI) is a fintech company that provides a wide range of financial services, including student loan refinancing, banking, investment, and insurance products. While SoFi initially gained attention for student loan refinancing, it has since established itself as a full-fledged digital financial platform.
Valued at $7.6 billion, SoFi stock has fallen 29.6% YTD, compared to the broader market.
Notably, SoFi operates in three main segments: lending, technology platforms, and financial services. SoFi's origins are in student loan refinancing, which remains one of the company's largest revenue streams. In October 2023, federal loan repayments resumed, reopening refinancing opportunities for the company.
In the second quarter, there were 643,000 new members added, bringing the total number of members to 8.8 million. The company added 946,000 new products, resulting in a 36% increase in total products to 12.8 million. Total revenue increased 20% to $598.6 million.
The lending segment made $340.7 million in revenue during Q2. The Financial Services segment grew an impressive 80% year on year, generating $176.1 million. Concurrently, the Technology Platform segment grew by 9%. This performance resulted in a third consecutive quarter of GAAP profit of $17.4 million, compared to a loss of $47.5 million in the prior-year quarter.
Analysts predict revenue growth of 18.9% to $2.47 billion in 2024, with earnings expected around $0.09 per share, compared to a loss in 2023. Furthermore, analysts foresee revenue and earnings increasing by 15% and 164.3%, respectively, in 2025.
Overall, Wall Street rates SOFI stock a “hold.” Out of the 18 analysts covering the stock, four have a “strong buy” recommendation, one suggests a “moderate buy,” 10 analysts suggest a “hold,” and three recommend a “strong sell.”
The average analyst price target of $8.96 implies a potential upside of about 27.8% in the next 12 months. The Street-high target price of $12 implies a potential upside of 71.2% from current levels.
SoFi, valued at 29x forward 2025 earnings and 2.7x forward sales, appears to be a reasonably priced growth stock, given its long-term potential in the fintech industry.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
