Fintechs were all the rage in the midst of the COVID-19 pandemic. But the stocks have lost their luster more recently. Shares of many fintechs are near or at 52-week lows after seeming unable to live up to their once-incredible hype.
As tough as it may be to do so, now's the time consider stepping into many of these stocks. In Warren Buffett's words, "be fearful when others are greedy, and greedy when others are fearful."
Here's a closer look at three of the top fintech stocks to buy while they're still down.
PayPal
There was a time when PayPal (PYPL 2.90%) was the dominant name in the online payment sector. As is always the case, though, competitors eventually surfaced, chipping away at PayPal's share of the market.
But, the stock's 80% pullback from its 2021 high to this month's new multiyear low just doesn't make sense. It's still the digital payments industry's single-biggest player, after all, and it's still growing despite the wind-down of the emergency phase of the pandemic, when consumers avoided brick-and-mortar stores and shopped online. Revenue grew 7% year over year during the second quarter of this year on an 11% boost in the total value of payments it processed. Total transactions of 6.1 billion were up 10%. Operating profit was up nearly 25% year over year thanks to curbs on expenses for marketing, administration, and support operations. Clearly the company's doing something right.
So why the prolonged weakness in the stock? It's difficult to say, other than to point out that perception can be more powerful than reality. Investors have seen a lot of competition creep into the digital payments sector. It's felt like PayPal is increasingly facing more competitors than it can handle.
Yet the dynamic could soon start working in the stock's favor again, particularly now that Intuit Executive Vice President Alex Chriss will soon be taking the helm from PayPal's current chief executive officer, Dan Schulman, who is retiring. The interesting thing about Chriss is that he's quite pro-crypto. Even without knowing exactly what the future of decentralized finance might look like, the selection of Chriss bodes well for PayPal's recent decision to issue a U.S. dollar-based stablecoin that essentially turns the fiat currency into a reliable but highly flexible cryptocurrency.
It could be just the nudge the stock needs, even if the news hasn't helped much yet.
Lemonade
Lemonade (LMND 1.64%) may not be a household name just yet. Give it time, though. There's a good chance you or someone in your household will eventually become a customer.
In simplest terms, Lemonade is an insurer built around artificial intelligence (AI). From homeowners to renters to drivers to pets, Lemonade can usually get you covered in a matter of minutes, often with little to no paperwork. Filing most claims is almost as easy. And as a bonus, the company makes a point of giving to several different charitable causes.
Although admirable, this giving is also increasingly questionable. Lemonade has not only remained in the red since launching back in 2015, but its losses have also grown since 2020. This may be a big reason the stock's continued to fall from its early 2021 peak after its initial public offering, hitting record lows in April.
The company may be at a key turning point, however. While likely to remain in the red for at least a few more years, continued top-line growth is finally allowing Lemonade to cover more and more of its fixed as well as its variable costs. In other words, its losses are starting to shrink. This year's expected revenue growth of nearly 60% is in turn expected to help narrow last year's per-share loss of $4.59 to a loss of only $3.73. Another round of revenue growth in 2024 is projected to shrink the per-share loss to $3.30. While still in the red, progress toward profitability could be enough to light a bullish fire under this beaten-down stock.
Analysts think this could be the case, anyway. Even with the company's continued losses the current average price target of $18 per share is about 25% above Lemonade stock's recent price.
Upstart
Last but not least, add Upstart (UPST 2.76%) to your list of fintech stocks to think about buying before August comes to a close.
It's admittedly the riskiest of the three tickers in question right now. Although last quarter's revenue decline of 40% isn't apt to become the norm, it's the norm until the global economy starts to improve and brings the lending market along with it.
Upstart is effectively a credit rating bureau that's angling to be more effective than old-line credit reporting bureaus like TransUnion or Equifax. Using AI and factors often not considered by traditional credit-score providers, Upstart offers lenders a new way to determine how likely it is a prospective borrower can and will be able to repay a loan. The company says its approach leads to 53% fewer defaults compared to the industry's current approach.
More and more lenders seem to see the benefits. More than 100 banks and credit unions now pay for access to its credit data, up from only 71 a year ago and only 25 two years back. Last quarter's big revenue drop mostly reflects waning demand for borrowed money. The Mortgage Banker Association's measure of demand for home loans hit a six-month low in August following last year's buying frenzy. Meanwhile, although sales of new and used automobiles are holding relatively steady compared to year-earlier levels, they're certainly not growing. That's keeping demand for car loans in check as well. Ergo, banks and other lenders aren't running a growing number of credit checks.
This headwind will eventually abate, but when? Nobody really knows.
Given the economy's penchant for surprises though, the lending market's likely to take a turn for the better before anyone expects it to. In this vein, while this whole year's likely to be as rough as the second quarter was, analysts believe Upstart's 2024 top line will be at least 40% higher than this year's projected figure. As such, given this stock's steep sell-off since early this month it arguably makes sense to wade in now even if that entry feels a little premature. It's better to be too early than too late, in this particular instance.
