Financial technology, or fintech, is a rapidly evolving industry with no shortage of impressive and disruptive companies. In this Fool Live video clip, recorded on Sept. 20, Fool.com contributors Matt Frankel, CFP, and Jason Hall discuss two fintech companies they think have the best potential to produce 10X returns over the next several years.
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Matt Frankel: From the current price, what do you think is the stock that most likely to 10X over the next, say, six, seven years?
Jason Hall: Probably Lemonade (LMND 0.99%). It's actually a coin toss from me between Lemonade and SoFi (SOFI 12.46%) but I think Lemonade just because that insurance industry, there's so much opportunity for disruption and they are really nailing it.
Frankel: I think I would agree with that. I don't want to call Lemonade a binary outcome, but they're definitely more so than SoFi. SoFi has that lending business that is going to keep it going even if some of its newer products don't pan out as well, Lemonade needs car insurance to work. They need their newer insurance verticals to really pan out, otherwise, there's no way to justify the current valuation, there's just not. If they do pan out, 10X should be a $40 billion valuation, which is in the realm of some legacy insurance companies. Companies like MetLife (MET 0.17%) are in that ballpark. I don't think they are quite at $40, but they're not that far off. If Lemonade could get its mainstream, growing its insurance lines like auto insurance up to that level then it has some 10X potential.
Hall: Far more binary though this is the operating line. This is a money-losing business, it's a cash burn business today, so you're spot on there, Matt.
Frankel: Other than Lemonade, SoFi definitely has a potential. It's not that small of a company. Market cap is about a little under $12 billion right now. That means SoFi would have to become about the size of Square (SQ -4.82%) to become a 10-bagger. Not impossible at all.
Hall: I was going to ask you, say, 10, 15 years from now, do you think SoFi could be bigger than Square?
Frankel: It's possible if things work out well.
Hall: Things have to go great for SoFi and Square has to make a couple of pretty big missteps, right?
Frankel: Yeah. I like how SoFi is really prioritizing the community aspect of it. Square does that in the Cash App, but they're not having Cash App member meet ups and things like that SoFi is doing. They're not really having an investment community to share stock advice and things like that. It's less of a community feel and I feel that can really be a driving force to get SoFi to that level over the next 10 years.
Hall: I think that's fair.