Visa (NYSE:V) is a giant among payment stocks. While many companies compete in the payment processing space, the two names that come to mind right away are Visa and Mastercard (NYSE:MA).
To be clear, this article doesn’t tell you not to invest in Visa. The stock has delivered solid returns for investors for years. For example, in just the last five years, V stock is up more than 90%, and the dividend, while having a meager yield of just 0.75%, has increased in the last 15 years. And the digital payment space will continue to grow at a compound annual growth rate of approximately 17% through 2031.
But Visa is a mega-cap stock with a market cap of over $500 billion. That may not fit what every investor is looking for. However, while there are many competitors in the payment processing space, some of the more intriguing names (I’m looking at you, Stripe) are not publicly traded.
Nevertheless, here are three payment stocks that investors should keep on their watchlist if they’re looking for what could potentially be the next big thing.
Block (SQ)
Block (NYSE:SQ) is a logical choice as one of the payment stocks that could be the next Visa. After all, the premise that gave birth to the company was a scenario where small businesses were put in situations where they couldn’t take credit cards.
But that thesis alone won’t necessarily move the meter for investors. That’s potentially reflected in SQ stock, down 12% in the last 52 weeks despite a nearly 20% gain in the last three months.
For that, the company has to show that it can deliver consistent profits. In November, Block posted its third consecutive profitable quarter, and profits are up 21% year-over-year. Significantly, that was the percentage the company guided for, and it’s now guiding for 19% earnings growth in the coming year. That could be one reason analysts are projecting nearly 20% growth in the SQ stock price in the next 12 months.
The company still lacks the relative scale of a company like PayPal (NASDAQ:PYPL). However, despite trading at a premium to PYPL stock, Block appears to have the momentum that PayPal lacks. This includes providing customers access to cryptocurrencies that are seeing a thaw after the long crypto winter.
Capital One Financial (COF)
Even as financial technology (fintech) services grow, many leading companies rely on partnerships with Visa or Mastercard. Capital One Financial (NYSE:COF), for example, issues cards from both depending on what works better for its customers.
But it’s still considered a competitor of Visa. COF stock is providing investors with a compelling story. As part of its pledge to reimagine the banking industry, Capital One now has over 700 retail banking locations in the United States, including 51 of the company’s Capital One cafes.
This banking component sets Capital One apart from Visa, taking it beyond the realm of payment stocks. 54% of the company’s revenue comes from commercial or consumer loans.
Capital One has a market cap of just over $50 billion. The stock has been no slouch, delivering a 60% return in the last five years. It also has a dividend yield of around 1.75%, more than double that of Visa.
SoFi Technologies (SOFI)
When many investors think about SoFi Technologies (NASDAQ:SOFI) they might make the connection with student loans. But if SoFi has been flying under your radar, you should know that the company is growing fast. It’s a full-fledged banking institution right now. Its payment processing service, Galileo, also continues to show double-digit customer growth year-over-year.
Despite the company’s evolution, SOFI stock can’t seem to sustain momentum no matter what it does. That includes generating a profit as it did for the first time in the last quarter.
This could be a case of analysts waiting for SoFi to prove it in an environment where interest rates will likely remain higher for longer. To that end, the company is projecting earnings growth of 242% in the next 12 months. At the same time, analysts only give the stock a 13% upside.
On the date of publication, Chris Markoch did not have (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.