Is it time to turn bullish on fintech stocks? Fintech companies offer various valuable advantages by leveraging digital technology to streamline financial transactions and provide services comparable to traditional banks, all while mitigating the risks underscored by the recent banking crisis.
Yet the fintech sector has felt the heavy pressure of inflation and high interest rates over the past year. However, the economy is improving now, and for investors, this makes the present the best time to buy in, at least according to Benchmark analyst Mark Palmer.
Looking at the state of the sector, Palmer traces the roots of its current state to the comeback from the COVID era, but thinks that a shift in sentiment is now due. “Many Fintech stocks that soared during the COVID-19 pandemic, based on the false belief that the temporary boosts that they received from the crisis reflected a permanent shift in consumer behavior, have continued to experience the lingering effects of a post-pandemic hangover,” the analyst explained. “While most current Fintech stock valuations reflect pessimism or doubt concerning the prospects of the companies within the sector, we believe many firms within the space have ample room for strong growth in the coming years.”
Palmer is running with this, pounding the table on 3 fintech stocks, and seeing them as winners going forward. We’ve used the TipRanks database to find out what the rest of the Street has to say about his top picks. Let’s take a closer look.
Block, Inc. (SQ)
First up is Block, a leader in the fintech world and the holding company behind two popular apps, Square and Cash App. These apps, Block’s chief subsidiaries, approach fintech from opposite, but complementary, directions: Square comes at the field from the merchant’s perspective, while Cash App makes life easier for customers and buyers.
Square is designed to allow merchants to work both harder and smarter, to automate business actions for greater efficiency, and to organize a diversified revenue stream for greater profit and flexibility. The app includes both software and hardware; Square’s hardware devices can turn any smartphone into a credit card reader, while software allows merchant’s to use tablets as cash registers. Square is used by more than 4 million sellers around the world and facilitates more than 4 billion transactions every year.
Cash App, as noted, approaches fintech from the customer side of the transaction. Cash App allows its users to streamline their access to, and use of, money. The app makes possible quick, easy, universally accessible online payments, and gives users access to checking and savings accounts, credit and debit functions, and even stock investment options or the use of bitcoin to store funds.
These two apps, the chief segments of Block’s business, round off some of the sharp edges in the world of online finance, making it easier for both sellers and buyers to conduct business and manage their transactions. It’s a winning combination, that has brought Block significant revenue. for the 12 months ended on September 30, 2023 – the last 12-month period with data available – the company realized $20.79 billion in revenue.
Block’s next set of financial data, covering Q4 and full-year 2023, will be released later this month, so let’s take a look at the Q3 numbers, the last available, to get a feel for the company’s current position. The company reported a gross profit of $1.9 billion in Q3, up from $1.87 billion in Q2 and $1.57 billion in 3Q22, for year-over-year growth of 21%. The company reported an adjusted EPS of 55 cents, for a 13-cent per share gain year-over-year. The company’s outlook for 2024 includes $2.4 billion in adjusted EBITDA.
The solid outlook, gross profit growth, and the year-over-year EPS gain were important points in Palmer’s review of the stock. The Benchmark analyst writes of Block, “Block’s improving outlook for profitability reflects significant operating leverage. While during the past several years Block has consistently generated strong gross profit growth, the company has come under criticism from investors for its lack of bottom-line profitability. However, management’s sharpened focus on controlling the growth of Block’s operating expenses has enabled it to demonstrate the significant operating leverage inherent in its business model. We believe Block has reached an inflection point regarding its profit power, and that it has plenty of runway for increased profitability.”
In Palmer’s view, Block is worth a Buy rating, and the analyst’s $89 price target points toward a 37% share appreciation in the next 12 months. (To watch Palmer’s track record, click here)
Overall, this fintech gets a Strong Buy consensus rating from the Street, based on 21 recent analyst reviews with an uneven 20 to 1 split between Buys and Holds. The shares are priced at $64.98 and the average target price, of $84.65, suggests a 30% one-year upside potential. (See Block’s stock forecast)
CompoSecure (CMPO)
Next up, CompoSecure, has staked out an important fintech role for itself. The company is a leader in the secure payment card niche, particularly metallic payment cards. CompoSecure is at the forefront of a growing change in the payment card world, a shift from plastic to metal. Metal cards offer a suite of advantages over plastic, that more than offset the higher per-card cost of materials. Metal cards are more durable, are more amenable to holding security features, are more reliable when used, and have an esthetic that customers find attractive. While currently used mainly by high-net-worth individuals, the market for metal payment cards is expanding.
That expansion is substantial. CompoSecure works with more than 100 card payment programs, including 8 of the top 10 US card issuers, and has produced 144 million cards for this customer base from 2010 through 2022. Of that total, 30 million metal cards were issued in 2022 alone. The company has 53 patents issued, to protect its technology, and has another 43 patents pending. CompoSecure has several lines of metal cards available, weighing in from 7 to 21 grams, and featuring options such as metal veneer, glass or mirrored finishes, and various security measures. The cards are compatible with the latest in anti-fraud biometric and authentication systems.
The last set of financial results on record for CompoSecure cover 3Q23, and in that quarter the company brought in revenues totaling $96.9 million. This was down more than 6% year-over-year, and missed the forecast by more than $5.4 million. The company’s earnings, presented as a non-GAAP EPS of 24 cents, was up 2 cents per share year-over-year.
Taking a close look at this stock, Mark Palmer is appreciative of its high potential for the long-term. He writes of CompoSecure, “CMPO’s valuation does not reflect its dominant market position in the growing metal payment card market, in our view. We estimate CMPO’s share of the global metal payment card market, which we estimate at north of 70%, and global technology intelligence firm ABI Research’s forecast that the global metal card market is poised to grow at a mid-teens pace as the audience for such cards expands from high-net-worth individuals to the mass-affluent, and then to Millennial and Gen Z consumers.”
Translating these comments into a concrete stance, Palmer gives the shares a Buy rating, and sets a $7 price target that implies one-year growth of 39%.
Elsewhere on the Street, this under-the-radar name receives an additional 1 Hold rating, coalescing to a Moderate Buy consensus rating. The average price target here is $6.5, suggesting a 29% upside from the current share price of $5.03. (See CompoSecure’s stock forecast)
Payoneer (PAYO)
We’ll wrap up this list with Payoneer, a company that has been in the business of digital payment services and online international money transfers since 2005. The company offers its customers a trio of vital features: low fees, fast payments, and dependability. Payoneer brings democracy to global commerce, giving small and medium businesses access to a worldwide financial platform.
Payoneer offers its customer base – the small and medium business segment – a range of services that make it easier for them to both send and receive payments. The services can connect various market and business networks, allowing swift transfers of funds, and users can bill clients, both locally and internationally. And at the end, those users can withdraw funds from their accounts in their choice of currency, including USD, GBP, EUR, JPY, and even Aussie and Canadian dollars. Payoneer supports a total of 70 currencies, and offers services in more than 20 languages.
Perhaps the biggest benefit for Payoneer’s users comes at the end of the process. Customers have several ways of using the funds in their account, including keeping them for future payment transfers, making online purchases, withdrawing them to their local bank accounts, or withdrawing funds as cash at ATMs.
In 3Q23, the last reported, Payoneer saw a total of $208 million in revenue, up 31% y/y to reach, in the company’s words, ‘another quarter of record revenue.’ On a negative note, the Q3 top line was $920,000 below the forecast. The company’s bottom line came to 3 cents per share by GAAP measures. While a significant improvement over the 8-cent loss reported in the prior-year period, this EPS sum was 2 cents below expectations. The company had just over $590 million in cash-on-hand at the end of the quarter.
Nevertheless, turning to Benchmark’s Palmer, we find the analyst laying out a compelling case to buy into this payment fintech: “We view the company’s shares as offering a compelling opportunity for small-cap investors, as the strong value proposition of its cross-border payments offerings, combined with management’s plans for unlocking the value of the platform, has put PAYO on a path to post stronger organic revenue growth (~15%% exiting FY24) with strong profitability (adjusted EBITDA margins in the mid-20% context)… PAYO’s discount valuation (just 5.2x FY25E EV/EBITDA) trails those of fintech peers and does not reflect its prospects for profitable growth, in our view.”
Palmer quantifies his stance with a Buy rating and a $7 price target. At current levels, that target implies a 38% gain over the one-year timeframe.
There are 5 positive reviews on record for Payoneer’s shares, giving the stock a unanimous Strong Buy consensus rating. The stock has a trading price of $5.07 and an average target price of $7.60, suggesting a 50% increase in share value in the year ahead. (See Payoneer’s stock forecast)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
