Investors continue to cycle back into growth stocks across many sectors, including fintech stocks. With this, figuring out the best fintech stocks to buy may be top-of-mind right now.
Although many popular and more under-the-radar names have performed extremely well in recent months, for those with a long time horizon, several of them are arguably still strong investment opportunities.
Capitalizing on trends such as the digitalization of banking and payments, as well as emerging areas of finance like cryptocurrencies, the highest-quality stocks in this category are both benefiting from recent developments, and have the strong potential to keep on growing at an above average pace.
While many, if not most, of these best fintech stocks to buy may appear pricey based on traditional valuation metrics, strong fundamentals, coupled with macro trends that bode well for growth stock valuations (namely, the prospect of falling interest rates), making them worthy of a buy at current prices.
Adyen (ADYEY)
Since last fall, there’s been an 180-degree shift in sentiment for Adyen (OTCMKTS:ADYEY). Shares in the Netherlands-based digital payment processing platform operator have more-than-doubled off their lows. At first, ADYEY’s rebound was fueled by a positive response to announced sweeping changes in the company’s strategy.
Then, more recently, ADYEY stock has surged, following the release of quarterly results that show the strategy chance is already starting to pay off, as revenue has continued to grow at a satisfactory clip, and earnings are coming in well-above prior expectations.
Following this impressive comeback, shares are trading at a high valuation (52.3 times forward earnings). I wouldn’t rule out the potential for Adyen to continue soaring higher on positive surprises. At least, that’s the view of TD Cowen’s Bryan Bergin. Bergin last week upgraded shares, citing the potential for both future revenue growth and margins to exceed current consensus.
Fiserv (FI)
Since I last recommended Fiserv (NYSE:FI) as one of the best fintech stocks to buy, shares in this payment processing company have continued to perform well.
Following a nearly 25% run-up between October and December, the stock has climbed even higher. Fiserv has, and continues to, hit new all-time highs.
But even after an extended period of above-average price performance, make no mistake. FI stock remains more-than reasonably priced. At the current prices, Fiserv is trading at approximately 16.7 times forward earnings. That’s on the low end of fintech stock valuations.
As noted previously, given the company’s forecasted growth over the next few years, a re-rating to a forward multiple in the 20s isn’t out of the realm of possibility. Per Mizuho analyst Dan Dolev, the strength of Fiserv’s North American merchant business (such as its Clover platform) points to continued overall success for the company, and for shares.
Shift4 Payments (FOUR)
Shift4 Payments (NYSE:FOUR) is another digital payments stock that has benefited from a sharp rebound in sentiment.
Shares in this payments processor, which focused on sectors like e-commerce and hospitality, have bolted from the mid-$40s to the high-$70s since last November.
Yet despite this strong rally, it’s not as if the valuation of FOUR stock has all of a sudden gotten out of hand. Shift4 Payments currently trades for 26.9 times forward earnings. While this valuation doesn’t exactly put FOUR in undervalued territory, the stock may have ample room to expand this multiple.
Sell-side earnings forecasts for the company spread widely. If the U.S. economy continues to experience a soft landing (good for transaction growth), and if interest rates come down (good for both growth and FOUR’s valuation), earnings may just well hit the high end of forecasts (between $3.50 and $4 per share).
Global Payments (GPN)
Among the best fintech stocks to buy that have performed well but remain cheap, Global Payments (NYSE:GPN) fits very well within this category. Like the names discussed above and below, shares in this payment technology firm have also rallied strongly since last fall.
However, even after the big rally, GPN stock is still trading at only 13 times forward earnings. Admittedly, it makes sense why Global Payments currently trades at a discount. As a Seeking Alpha commentator recently argued, there are concerns as to whether earnings growth will keep up with revenue growth.
Global Payments’ dividend growth potential may also be limited by its over-leveraged balance sheet.
Still, while some analysts are more mixed about GPN’s prospects, analysts at Evercore ISI are bullish about the company’s pivot towards high-growth areas of the payments sector, as well as a ramp-up in cost synergies related to last year’s acquisition of EVO Payments.
Mastercard (MA)
If you’ve looking to buy and hold a high-quality/blue-chip among fintech stocks, Mastercard (NYSE:MA) is a sound choice. This is also the case for shares in this payment technology giant’s chief competitor, Visa (NYSE:V).
Both MA stock and V stock have sound track records in terms of earnings, dividends, and share price growth. MA may not have a high dividend yield (0.58%), but this payout has increased by an average of 17% annually over the past five years.
As I have argued previously about both stocks, thanks to the global switch from cash to digital payments, both companies are well-positioned to sustain earnings growth in the 15-20% range. Although both names trade at rich valuations, assuming current payment technology trends persist, so too could these high forward multiples. (31.8 times forward earnings for MA, 27.8 times forward earnings for V).
SoFi Technologies (SOFI)
If you’re looking for a long-term growth play, SoFi Technologies (NASDAQ:SOFI) is one the best fintech stocks to buy. Although this diversified digital-first financial services and technology firm has traded sideways in recent months, more stellar price performance may lie ahead.
Why? Last quarter, SoFi reported its first quarter of GAAP profitability.
With much of the fintech firm’s operating costs being fixed in nature, there’s big potential for this company, and for SOFI stock, to benefit from operating leverage. Revenue continues to grow at a solid pace (34% last quarter, for example).
However, thanks to the impact of operating leverage, the resultant impact on incremental earnings growth could be substantial.
Sell-side forecasts call for SOFI’s earnings to increase by nearly fourfold next year, and to more-than-double during 2026, to 51 cents per share. Not too shabby, for a growth stock currently trading for around $8.15 per share.
Block (SQ)
With Block (NYSE:SQ) shares already bouncing back 72% from their lows, you may think it’s already too late to make the Square, CashApp, and Afterpay parent a buy.
Yet while SQ is once again pricey (at 34.6 times forward earnings), and in fact pricier than its main peer PayPal (NASDAQ:PYPL), among the two established fintech stocks, SQ may be the better buy.
The PayPal turnaround remains a work-in-progress. Not to mention, highly uncertain. In contrast, between the potential for growth synergies between its business units, as well as Square’s high exposure to cryptocurrencies (which have recently come back in vogue), Square appears better-positioned to continue meeting/beating expectations.
In turn, this points to SQ stock outperforming PYPL stock in the near-to-medium term. Even as PayPal could in a few quarters begin to prove its skeptics wrong, for now (among the two fintech leaders), stick with SQ.
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.