It's hard to watch the bottom fall out from under the stocks in your portfolio, but hitting the sell button now would only lock in the losses. It might seem counterintuitive, but the best thing most investors can do during a stock market bloodbath is to keep buying their favorite stocks at a discount.
The fintech industry received more than its fair share of abuse during the current stock market correction. While these are relatively high-risk stocks, it's going to take more than a higher interest rate environment to stop them from disrupting their respective niches.
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1. Lemonade
Lemonade (LMND +3.59%) stock soared in early 2020, but it's fallen around 82% from its peak last year. That's a little surprising because this AI-driven insurance company is growing by leaps and bounds.
When Lemonade made its stock market debut in 2020, the company offered just three insurance products: homeowners, renters, and pet health. Since then, it has expanded its offerings to include life, and its auto insurance operation is just getting off the ground.
Lemonade is still reporting significant losses, but it's probably growing fast enough to make ends meet by the end of 2023. At the end of September 2021, Lemonade's customer roster grew 45% year over year to 1.36 million.
Lightning-fast, largely automated service has made expanding existing relationships with existing customers a breeze. Third-quarter revenue more than doubled year over year to $35.7 million. Despite lightening-fast growth, the stock's been trading at just 16.5 times trailing sales.
Lemonade's new car insurance product is only available in Illinois at the moment and expansion to the rest of the country could make it the company's biggest growth driver yet. Americans spend more on car insurance than homeowners, life, and pet insurance combined. Lemonade's plan to track customer movements to see how much time they spend in risky situations seems like a no-brainer when it comes to underwriting car insurance policies. Lemonade's stodgy competitors are so resistant to this change that the little fintech could eat their lunch before they can do anything about it.
2. SoFi Technologies
SoFi Technologies (SOFI +2.10%) stock has fallen by around 44% since making its stock market debut last June. Now you can pick up shares of the rapidly expanding fintech at just 10.2 times trailing sales.
SoFi got started a little over a decade ago by refinancing student loans. Now SoFi customers can use its smartphone app to open new checking accounts, individual retirement accounts (IRAs), credit card accounts, and home loans. From the same app, SoFi customers can also monitor similar accounts they have at competing banks.
Expanded product offerings have been driving growth faster than anyone could have imagined. At the end of September 2021, SoFi had 2.9 million members, which was 96% more than a year earlier. The total number of products more than doubled over the same time frame to nearly 4.3 million.
SoFi stock looks like a terrific deal at recent prices based on its consumer-facing business alone. The recent acquisition of Galileo, though, probably represents an even larger opportunity. Galileo provides infrastructure that other fintech businesses such as Robinhood and Samsung rely on to manage their own products, and they're beating a path to SoFi's door. The number of client accounts enabled by Galileo rose by 80% year over year in the third quarter to a whopping 89 million.
3. Upstart Holdings
Shares of Upstart Holdings (UPST +4.32%) have plunged about 75% from the peak they reached last October. Now you can own shares of the company upending how creditors assess potential credit risk for just 14 times trailing sales.
Upstart doesn't originate loans itself. Lenders hire Upstart to assess credit risk using a much wider range of data points than the outdated FICO score can provide, and business is booming. Third-quarter revenue soared 250% year over year to $228 million.
Upstart's position between lenders and borrowers is a lucrative one. In the third quarter, the company was able to report adjusted earnings that worked out to 26% of total revenue.
Upstart's partners originated over 360,000 loans on the company's platform in the third quarter. Investors can look forward to increasing volume now that the company has entered the enormous market for auto financing.
