Fintech stocks were among the top Wall Street darlings during the pandemic. These businesses rapidly grew revenue and profit as e-commerce volumes soared, providing swift and substantial returns to investors. As the pandemic receded and online transactions dropped, fintech stocks declined. Thus, many of the best fintech stocks now trade at bargain levels.
Personally, I see this as a long-term opportunity, as the setbacks in the e-commerce sector are not permanent. Online transactions have started to recover, and will likely to continue to increase over time due to a long-term transition toward cashless transactions. That’s likely to be driven by the growing impact of Gen Z and Millennials, who prefer to shop online more than their older counterparts.
Thus, investing in some depressed fintech stocks can set you up for meaty gains in the long-run. Let’s start!
PayPal (NASDAQ:PYPL) is likely the first company that comes to mind when investors think about fintech stocks or payment processing software companies in general. It is a household name and one that is here to stay. However, this stock was hammered in recent years, as Wall Street grew cautious of the company’s dwindling user account growth.
User growth in Q4 2023 came in at a paltry 0.9% on a year-over-year basis. Now, expecting PayPal to maintain high growth rates in a market decline is unrealistic. Moreover, I believe this is just a cooldown from the exceptionally high growth the company saw during the pandemic. Thus, I expect PayPal’s user account growth to shift to a more sustainable growth trajectory in the next few years.
Regardless, the company is still delivering great financial results, and buying back stock aggressively. In Q2 2023, PayPal reported revenue of $7.4 billion, beating analysts’ estimates by roughly $50 million. The company also generated $1.17 in earnings per share, surpassing expectations by $1.10. To top all that off, PayPal expects to repurchase $4 billion in stock this year.
Additionally, PYPL stock provides investors with a great margin of safety here. PayPal is dominant in the global digital payments market, which is expected to grow at an 11.8% compounded annual growth rate (CAGR) from 2023 to 2027. PayPal can capture a lot of that growth simply due to its market share of ~40%. Analysts expect PayPal to have nearly double-digit sales growth for the foreseeable future through 2025.
Plus, PYPL is trading at a reasonable valuation of 15-times forward earnings, lower than its historical average and peers. The stock also has strong technical support around the $70-$75 level, limiting its already small downside risk.
I favor PagSeguro (NYSE:PAGS) for its untapped Latin American market exposure and significant growth potential. According to IDB, the fintech industry in Latin America and the Caribbean has doubled over the past three years (report is from 2022). Brazil leads the region with 31% of the total fintech market, followed by Mexico, Colombia, Argentina, and Chile.
PagSeguro is one of the leading payment service providers in Brazil, offering online and offline solutions for merchants and consumers. The company operates in two segments: PagSeguro Digital and PagBank, offering payment processing software, hardware, e-commerce, wallets, cards, and credit solutions. In contrast, PagBank is a digital bank providing services like deposits, transfers, loans, investments, insurance, and cashback rewards.
PagSeguro, like PayPal, is likely to see a big rebound in its high-growth markets. The company has grown its revenue and earnings at impressive rates over the past few years. In Q1 2023, PagSeguro reported revenue of $721.87 million, up 10.6% year-to-date. The company also posted earnings per share of $0.22, up 10%. These are very good figures in the current environment, and I expect PAGS stock to follow suit and rebound soon.
Marqeta (NASDAQ:MQ) is a fintech stock that I think is flying under the radar, given its substantial growth ahead. A leader in cloud fintech payments, Marqeta provides a modern card issuing platform that enables businesses to create customized payment cards and solutions. Marqeta’s platform supports virtual, physical, and tokenized cards, plus features like spend controls and instant issuance.
Marqeta has been growing its revenue and customer base rapidly in the past few years. In Q1, the company reported revenue of $217 million, up 31% year-over-year. The company also increased its total processing volume (TPV) by 37% to $50 billion. Much like PayPal, keep your eyes peeled for the company’s upcoming Q2 earnings call on August 8.
Marqeta is well-positioned to benefit from the secular digital transformation trends, e-commerce, and embedded finance. The card issuing market should grow at an 8.2% CAGR (2022-2031), and payment processing at 22.5% CAGR (2022-2030). Marqeta’s cloud-native, API-driven platform positions it well to capture growth with faster, flexible, and secure payment solutions. This is a top pick among fintech stocks, in my view.
On the date of publication, Omor Ibne Ehsan 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.