Fintech has been on a tear in recent years. With digital payments, new lending services, software that helps companies automate accounting and finance tasks, and the emergence of cryptocurrency, a myriad of technological developments are reshaping the financial industry landscape. A slew of new companies have popped up to capitalize on the movement, many of them capturing plenty of investor attention.
Not all fintech stocks command the spotlight, though. Three often-overlooked companies worth a closer look to kick off 2022 are Silvergate Capital (SI -7.69%), nCino (NCNO), and FactSet Research Systems (FDS 0.37%).
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1. Silvergate Capital: A top platform for institutional crypto trading
Silvergate Capital is a bank, and therefore many investors might balk at the fact that it currently trades for 21 times sales and 50 times earnings on a trailing-12-month basis. However, while this is indeed a bank that makes most of its money from interest income, it's also playing a key role in the development of the crypto industry.
The company launched the Silvergate Exchange Network (SEN) a number of years back, allowing institutional crypto investors and crypto traders to send cash 24/7 -- a crucial function since cryptocurrency markets never close. A number of top crypto trading platforms are among SEN's customer base, including Coinbase Global (COIN -6.54%), and Silvergate continues to report a rising number of users and deposits. As of the third quarter of 2021, digital currency customers were up 41% year over year to 1,305, and average crypto customer deposits were up 13% to $11.2 billion.
This big influx of deposits (which bear no interest expense to Silvergate) paired with rising interest rates in the year ahead (which would mean more interest income to Silvergate) portends another big jump in Silvergate's earnings in 2022.
It has other initiatives in the pipeline, too. If and when Meta Platforms (META 0.64%) eventually launches its stablecoin project Diem for Facebook's digital payments business, Silvergate will be the bank that handles its issuance. And Silvergate announced a new investment fund aimed at early-stage fintech start-ups.
It all adds up to an exciting bank stock, albeit one that is above-average in volatility given its tight link to the Wild West crypto industry. Nevertheless, for those interested in an institution that is betting big on the future of money itself, Silvergate Capital is worth serious consideration.
2. nCino: Bringing bank software into the 21st century
nCino was a hot stock after going public in the summer of 2020. The company built an operating system for banks using the Salesforce.com (CRM 1.92%) cloud platform, and Salesforce remains a partner and investor in this small software outfit. But it's been rough going for shareholders of the company ever since. The stock is down over 40% since making its debut in public trading.
Now looks like it might be the time to start nibbling, though. All the while that shares have been declining, nCino's business has been climbing. Management expects revenue during its current fiscal year 2022 (the 12-month period that will end Jan. 31, 2022) to be as much as $268 million, a 31% year-over-year increase.
Not all investors will be comfortable with this stock. nCino is spending heavily on development and marketing, and thus operates at a loss at the moment. Free cash flow was negative $14 million over the last 12-month stretch. This is by design since nCino is prioritizing growth right now as banks, lenders, and other financial institutions are updating their operations amid rapid changes in consumer behavior. Expectations have changed, and younger generations are demanding a digital-first service from the financial companies they do business with. nCino is helping manage that transition to the digital era.
At just under 20 times trailing-12-month sales, nCino trades for a premium price tag even after the stock's decline over the last year and a half. But if the company can continue its double-digit-percentage pace of expansion ($381 million in cash and no debt certainly helps its chances), it might not be that wildly overpriced. If you do buy, just remember to start very small and add to a position over time if nCino proves its growth story is the real deal in the long term.
3. FactSet Research: Expanding its role in global financial markets
Let's change gears and talk about FactSet Research, a far more boring stock compared to the fast growth that Silvergate and nCino offer. FactSet's revenue growth rate has averaged a single-digit percentage the last few years, although free cash flow is up nearly 50% since the start of 2019. But sometimes slow and steady can help us investors win the race.
FactSet provides financial institutions with data, market research, and operational management software solutions. And it's still expanding its reach in the global financial markets ecosystem. To build on its suite of services, it recently announced it's acquiring CUSIP Global Services (the system that identifies and manages financial instruments like stocks and bonds) from S&P Global (SPGI 0.77%) for just over $1.9 billion in cash. CUSIP should be highly complementary to FactSet's existing data services and will immediately have a positive impact on the company's overall bottom line.
As financial markets steadily expand, FactSet expects to steadily grow as well -- and increase its profitability even faster. Management expects revenue to increase 8% year over year for fiscal 2022 (which excludes any benefit from the pending acquisition of CUSIP), all the while maintaining its adjusted operating profit margin at about 33%.
At just under 36 times trailing-12-month free cash flow, shares aren't exactly cheap. But investors get treated to a modest dividend and share repurchases along the way, all coming from a firm that boasts 41 consecutive years of sales growth and 22 years of rising dividend payout. It may not be a top-of-mind name in fintech, but FactSet is worth a look for 2022.
