Two months into the year, the S&P 500 is little changed. Although inflation remains higher than ideal, the U.S. economy is proving resilient. But positive news is failing to move the market.
These are the kinds of times when it's important to remember Benjamin Graham's famous saying: "In the short run, the market is a voting machine. But in the long run, it is a weighing machine." If you choose great stocks and hold them for a long time, it won't matter what happens in the first two months of 2026.
Let's examine the long-term prospects of two fintech stocks that Wall Street is keen on today: Block (XYZ 7.42%) and Pagaya Technologies (PGY 5.14%). Wall Street sees Block gaining as much as 65% during the next 12 to 18 months, and it sees Pagaya gaining as much as 195%.
Image source: Getty Images.
1. Block, formerly Square
Block, back when it was Square, caught market attention for its innovative financial products and services. Its Square sellers business provides a high-level digital platform, simplifying financial management, and it's one of the most popular platforms for merchants processing payments. It also built up a popular personal financial management platform called Cash App, which remains one of the most popular options available.
But it has experienced several problems during the past few years, falling into two main categories: failing to boost profitability and veering into tangential services that don't support the two main platforms. Consequently, the company lost the market's support, and the stock, which had at one point gained 1,500% and looked like the next big winner, is now about 80% off its highs.
NYSE: XYZ
Key Data Points
Is it oversold at this point? It trades at the cheap valuation of 1.7 times trailing-12-month sales and 19 times forward-one-year earnings, but that's only a deep discount if the market becomes convinced that the company can change its trajectory. And it's been trying to do that unsuccessfully for several years already.
The stock did rise after the fourth-quarter earnings release last week. Sales were slightly higher than the previous year, and operating income and margin improved substantially.
The market mostly celebrated the company's announcement that it's downsizing, from 10,000 workers to 6,000. That gives you a sense of the bloat at the company until now.
It's adding more artificial intelligence (AI) to its systems to become more efficient, but at the same time, it's one of the software-as-a-service companies that the market is worried could become irrelevant precisely because AI may be able to do the same job it does.
There's risk there, as well as in its continued reliance on Bitcoin. The cryptocurrency has been falling, dragging down Block's total revenue in the fourth quarter.
There's also general risk in betting on a recovery in a company that has struggled. So, although it could be oversold at this price and worth buying now, it hasn't proved that it's a solid long-term bet.
2. Pagaya, the AI answer to credit
Pagaya uses a sophisticated platform to assess creditworthiness, approve loans at higher rates, and sell bundles of asset-backed securities to institutional investors. It's growing rapidly. Revenue increased 20% year over year in the fourth quarter, and net income reached $34 million, topping its projections for as much as $25 million.
It works in five different credit sectors, including personal and auto loans. It has 30 lending partners, including high-profile names like U.S. Bancorp, the fifth-largest U.S. bank by assets, and Visa, and it has more than 150 funding backers. It recently announced a new $800 million funding round for its loans, which is important to ensure that it has no hiccups as it expands.
NASDAQ: PGY
Key Data Points
If Block looks like a bargain today, Pagaya is dirt cheap, trading at a price-to-sales ratio of only 0.8 and a forward-one-year price-to-earnings ratio of 3.8. There are several reasons the market is pricing it low right now and why the stock tumbled after the fourth-quarter earnings release.
One is near-term pressure from its single-family rental (SFR) property operation. It acquired Darwin, a rental technology and management company that complements its AI-based model. The struggling real estate market is putting pressure on that segment, and while network volume increased a mediocre 3% year over year in the fourth quarter, without SFR, it increased 34%.
Another reason for the drop in share price is a disappointing outlook for 2026 that implies only a 15% increase in revenue and network volume, hardly making for a compelling fintech growth-stock story.
At this price, all of the 10 analysts covering Pagaya call the stock a buy, and the lowest target price is about 80% higher than today's price.
