Investors went wild over Upstart Holdings (UPST +2.10%) stock when it first went public in late 2020, only for the shares of the artificial intelligence (AI) credit scoring company to crumble in 2022 as lending slowed. Things looked like they were set for a rebound this year, but that hasn't happened yet, and management isn't sounding very optimistic now. Although it forecast a sales increase in the 2024 first quarter, management does not expect a return to profitability.
At the current price, Upstart stock isn't even a bargain, trading at 3.6 times trailing 12-month sales. Upstart could still recover and go on to become an incredible stock, but right now there are other fintech stocks that look like better buys. SoFi Technologies (SOFI +0.34%), Nu Holdings (NU 0.82%), and Pagaya Technologies (PGY +0.46%) are three growth stocks that are performing well under pressure and have lots of potential.
1. SoFi Technologies: The bank of the future
SoFi is an all-digital bank geared toward millennials and young professionals. It began as a student loan cooperative, but it has expanded to offer a full suite of online financial services. Its lower fees, high rates, and easy-to-use interface are attracting millions of new customers, and as new customers sign up for accounts, management is focused on cross-selling new products.
NASDAQ: SOFI
Key Data Points
In the 2023 fourth quarter, it added 585,000 new accounts, a 44% increase year over year, and 695,000 new products, a 41% increase. Revenue growth accelerated to 35% year over year in the 2023 fourth quarter, and SoFi delivered its first generally accepted accounting principles (GAAP) profit as a public company, as promised, with $48 million in net income. Management expects net profit in the 2024 first quarter and full year.
Deposits are growing, loans are increasing in all categories, and this is just the tip of the iceberg of SoFi's huge opportunity.
SoFi stock trades at a price-to-sales ratio of 3.3, cheaper than Upstart, and it looks like an incredible value at this price.
2. Nu Holdings: The bank of the future in Latin America
Nu Holdings has many similarities to SoFi, but it operates in its home market of Brazil, and more recently in Mexico and Colombia. It operates under the banner of NuBank, an all-digital bank with a wide range of financial services like credit cards, loans, and investing tools.
It added 4.8 million customers in the 2023 fourth quarter to end the year with a total of 93.9 million. It also generates higher revenue through upselling and cross-selling, and it uses average revenue per active customer (ARPAC) as an important top-line metric. That increased from $8.20 in 2022 to $10.60 in 2023 in the fourth quarter. It's also demonstrating incredible profitability -- net income increased from $58 million to $360 million year over year in the fourth quarter.
NYSE: NU
Key Data Points
Nu's credit business is flourishing as well. Deposits increased 38% year over year to $23.7 billion in the fourth quarter, and its interest-earning portfolio was up 91% to $8.2 billion. Receivables from credit cards and personal loans increased 49% to $18.2 billion.
Nu is just getting started in Mexico, where it recently launched a new deposit product, and Colombia, where it received its financial license in December.
At the current price, Nu stock trades at the bargain price of less than 17 times forward one-year earnings. It could be a multi-bagger during the next few years, so this Warren Buffett stock offers high growth with low risk.
3. Pagaya: Like Upstart without the hype
Pagaya operates a business similar to Upstart, but it's been performing much better lately. Network volume increased 33% year over year in the 2023 fourth quarter, and revenue rose 13%. It has some high-level lending partners, including SoFi, Visa, and most recently U.S. Bank. These partners use Pagaya's artificial intelligence-based platform for risk management and credit approvals.
Pagaya has a broad network of 100 funding partners to buy the loans it approves, and it raised $6.6 billion in funding in 2023. All of its loans are funded before being written, and Pagaya was the top issuer of asset-backed securities (ABS) personal loans in the U.S. last year.
NASDAQ: PGY
Key Data Points
Out of these three stocks, Pagaya looks like it comes with the most risk. It's not profitable yet on a GAAP basis, although operating profitability has been steadily improving. It's not a stock for the fainthearted, and it's made some interesting moves lately that could scare off risk-averse investors. It did a reverse 12-for-1 stock split, which management explained was to increase the price per share and make it eligible for inclusion in certain indexes and to more institutional investors. However, that was followed up immediately with a new stock issuance at a discount to the post-stock split price. That didn't make investors too happy, and the price fell to lower than the new stock issue price, where it has more or less stayed.
At the new, low price, Pagaya stock trades at a dirt cheap price-to-sales ratio of 0.7. Wall Street expects Pagaya to become profitable on a GAAP basis this year, so while this is a stock for only the highly risk-tolerant investor, there's serious reason for optimism right now.
