Scalding-hot inflation and rising interest rates have sent the market tumbling, and Wall Street is playing it safe by selling new and exciting stocks in favor of the tried and true. But that can create opportunities for the bold and patient investor, and the financial technology, or fintech, space is ripe with prospects.
You don't even need a ton of money to gain exposure to the long-term upside -- you can buy shares of these three potential rising stars for less than $100.
1. Upstart Holdings
Upstart (UPST -1.97%) uses artificial intelligence to generate a credit score that potentially replaces Fair Isaac's FICO score and determines a borrower's worthiness. It uses that score to originate personal and auto loans and then refer those loans to one of the banks or credit unions in its referral network for a fee, which is how Upstart generates most of its revenue.
Based on Upstart's stock price drop, some investors may be worried that its AI might fail in a recession as more borrowers have the potential to default on their loans. It's a valid concern, and investors should closely follow Upstart's quarterly updates to see how its loans perform.
However, more lenders are partnering with Upstart each quarter (it totaled 57 as of 2022 Q1), and 11 of those partners have dropped FICO scores from their borrower requirements. These increasing numbers could signal that lenders have faith in Upstart's technology.
The company has just under $1 billion in cash on its balance sheet, which should provide financial stability in a recession. It also implies that the stock's current market cap of $2.1 billion is cheap -- you're getting nearly half the company's value as cash! The price-to-sales ratio (P/S) is just 2.3, which could be an eventual bargain in hindsight.
At a price of roughly $25 per share, you'd have $75 of the original $100 remaining.
2. Affirm Holdings
The lending service commonly known as buy now, pay later (BNPL) went mainstream in 2021, and Affirm (AFRM -0.45%) is one of the BNPL industry's leaders. Shoppers can go through Affirm to shop online, receiving instant loan offers for anything they wish to purchase. Affirm uses AI to make lending decisions right at the point of sale.
Consumers benefit from Affirm because it doesn't charge late fees and often doesn't charge interest. Merchants benefit because these easy, flexible loans encourage shoppers to follow through with purchases. Affirm makes money from any interest it does charge users and the fees it collects from its partner merchants.
Affirm's been laser-focused on expanding its ecosystem, bringing as many shoppers and merchants onto its platform as possible. It's partnered with several retail powers, including Amazon, Shopify, Walmart, and Target. Meanwhile, there are now 12.7 million active users shopping through Affirm. The company's also launching a debit card that could help it continue growing its user base.
The company does carry loans on its balance sheet, which is likely the reason for the stock's dramatic slide, especially with a potential recession looming. However, Affirm's sitting on more than $3 billion in cash and equivalents, while just over 2% of loans are more than 30 days delinquent. Investors should monitor quarterly results to ensure losses don't pile up.
Investors are getting roughly half of Affirm's $6 billion market cap in cash, and the stock trades at a P/S of just 4.6. Is Affirm a guaranteed success? Of course not, but the upside could be substantial if things work out.
At a price of roughly $21 per share, you'd have $54 remaining from the original $100.
3. DLocal Limited
E-commerce has steadily grown into a massive but fragmented industry over the past two decades. The headache of foreign payments can deter shoppers and merchants from using e-commerce outside domestic markets. DLocal Limited's (DLO -4.28%) application programming interface (API) lets merchants receive and send money and settle transactions in emerging markets.
DLocal specializes in emerging markets like Africa, the Middle East, Latin America, and Asia. It currently works with more than 400 merchants and supports more than 700 local payment methods. The annual volume of payments DLocal has processed grew from $1.3 billion in 2019 to $6.0 billion in 2021.
Wall Street might be worried about potential competition from companies like Dutch payments giant Adyen. Still, DLocal's management believes that the total payment volume in the markets it targets could exceed $1 trillion by 2024, so there seems to be room for multiple winners.
DLocal has $410 million in cash and generated $87 million in net income over the past year, so the business is financially stable despite the stock price falling more than 60% from its high. Like most technology stocks, DLocal stock has taken a hit in this market. You might not call the stock cheap at a P/S of 28, but shares were at a P/S of 120 last fall, so the valuation looks more reasonable today.
At a price of roughly $25 per share, you'd have $29 remaining to buy a second share of any of these three stocks if you wish.
