You invest in undervalued fintech stocks because they are trading at a discount and are promising rapid growth in the near term.
While the overall stock market has been on a tear in recent years, many fintech stocks have been lagging. This is partly due to the skepticism surrounding new and innovative companies in the financial sector.
However, many undervalued fintech stocks are trading at a discount and offer promising growth prospects in the near term.
One reason to invest in undervalued fintech stocks is that they are often leaders in new and innovative technologies. These companies are well-positioned to benefit from the shift to digital payments, which is expected to accelerate in the coming years.
Another reason to invest in undervalued fintech stocks is that they tend to be more nimble than their larger counterparts. For example, when the major banks began implementing strict new regulations following the financial crisis, many small fintech startups could take advantage of the resulting confusion and seize market share.
If you’re looking for stocks with high upside potential, undervalued fintech stocks should be on your radar. Here are seven that will pique your interest:
| SQ | Block | $53.98 |
| AFRM | Affirm Holdings | $19.04 |
| COIN | Coinbase | $69.39 |
| HOOD | Robinhood | $10.28 |
| SOFI | SoFi Technologies | $4.96 |
| LMND | Lemonade | $20.98 |
| NRDS | NerdWallet | $11.02 |
Block (SQ)
Block (NYSE:SQ) is a financial technology company that provides payment processing, point-of-sale software, and business analytics to small businesses and individuals.
However, the focus of the company is changing. Management is now concentrating more on cryptocurrency and related fields, this is reflected in the name change of the company to Block from Square.
The company’s stock has suffered steep drops in recent months, falling from a 52-week high of $270.16 per share to close to $54 per share today.
Block is led by Jack Dorsey, one of the company’s founders, who gave up his Twitter (NYSE:TWTR) post to manage this business. It is one of the most undervalued fintech stocks to buy right now, with significant upside potential as the adoption of blockchain technology grows.
The company is also praised for being active when others are becoming more reluctant regarding M&A activity. A notable example is the multi-billion all-stock deal to purchase the “buy now, pay later” company Afterpay.
Blockchain is a fairly new technology that’s still in its infancy. Block is a good stock to invest in for exposure to this space, and its management team has made the right moves for the company to thrive during these times.
Affirm Holdings (AFRM)
Affirm Holdings (NASDAQ:AFRM) is a financial technology company offering consumer installment loans.
The company has partnerships with over 168,000 retail partners, including major brands such as Walmart (NYSE:WMT), Expedia (NASDAQ:EXPE), Target (NYSE:TGT), American Airlines (NASDAQ:AAL), and more.
Straits Research forecasts the buy now pay later market to grow to $3.68 trillion by 2030. In the forecast period (2022-2030), a compound annual growth rate of 45% is expected.
For the full fiscal year 2022, Affirm reported revenue of $1.3 billion, a tiny slice of the overall market. Therefore, Affirm is not done growing as yet.
The only issue for Affirm is its losses in a bearish market. Even the best fintech companies, with several years of profitability behind them, cannot err when it comes to earnings in the current environment.
The markets, therefore, have been brutal to the stock, and it doesn’t look like things will change anytime soon.
However, the positive is that the stock is available at a discount. In the year thus far, shares have shed more than 60% in value, which is why it’s on this list of undervalued fintech stocks to buy.
Coinbase (COIN)
Coinbase (NASDAQ:COIN) is a digital currency exchange and wallet service where you can shop using cryptocurrencies like Bitcoin (BTC-USD), Ethereum (ETH-USD), and Litecoin (LTC-USD).
It has an intuitive interface, user-friendly customer service, and advanced security features. The company also offers a mobile app that allows users to buy and sell cryptocurrencies.
Although the company is young, it is growing at a rapid pace. Coinbase had 98 million registered users at the beginning of 2022. But most of those came in 2021, when the crypto market was booming.
Coinbase is just one example of the immense potential of fintech companies. It has allowed people to invest in cryptocurrency without purchasing entire coins. This has opened up a whole new world of investment opportunities for people who previously could not invest in cryptocurrency.
Under the circumstances, Coinbase is doing the best it can. It got regulatory approval in the Netherlands and easily handled some minor tech snafus to ensure the platform was robust. Since the company’s fortunes remain intimately tied to the crypto market, it is relatively riskier than some of the other names on this list.
Robinhood (HOOD)
Robinhood (NASDAQ:HOOD) is an online broker that offers commission-free trading on stocks, ETFs, and options. The company is growing rapidly as more people, particularly millennials, get involved with trading.
As of June, there are 22.9 million monthly active users on the app, up substantially from just half a million in 2014. Robinhood has also launched commission-free trading of cryptocurrency, which will help it scale even more.
Despite its tremendous growth, Robinhood finds itself in hot waters at the moment. For one thing, the earnings season is underway.
This time around, expectations may be sharply subdued following the recent volatility in the stock market, which will weigh down sentiment in the near term.
Robinhood is taking this in stride and is steadily increasing the range of its offerings and forging new partnerships. Recently, the company added the USD Coin (USDC-USD) to its range of cryptocurrency offerings.
Robinhood has also launched the beta version of its Polygon (MATIC-USD)-based web3 wallet. The wallet lets people trade cryptocurrencies without network fees.
SoFi (SOFI)
SoFi Technologies (NASDAQ:SOFI) provides financial products and services, including student loans, personal loans, and mortgages.
The company went public with a spectacular debut in June 2021, closing up more than 12% to $22.65 a pop on the first day of trading. Today, it’s in penny stock territory.
The markets are likely pricing in the impact of President Biden’s decisions on student loans. Earlier this year, Joe Biden announced that he would wipe $10,000 off the federal student debt of most borrowers.
In addition, the administration extended the moratorium on student loans for the seventh time.
Pre-pandemic, the company’s biggest business area was student loan financing. But the company has made many strides this year that will help it diversify revenue streams.
It has acquired a bank charter and integrated Technisys and Galileo into its operating model. It is far more robust than it was pre-pandemic and will reward investors as the economy improves.
Lemonade (LMND)
Lemonade (NYSE:LMND) is a company that sells insurance. The company is AI-based, using artificial intelligence to process claims and underwrite policies.
Lemonade’s business model has been described as “insurance as a service.” The company has been praised for its use of technology.
Lemonade is built on the idea of using data to provide the best possible customer experience at an affordable price.
It collects about 100x more data points per customer than traditional carriers. This means that it can offer customers a much more accurate premium and claim payout than its competitors.
Like many new fintech companies, the company is loss-making. However, investors will be happy that the company has mapped out a clear strategy for profitability. Management is confident losses will peak by Q3.
The recent rise in the cost of capital has caused them to slow down its spending plans, resulting in fewer expenditures than expected this year. All of this is music to the ears of investors looking for undervalued fintech stocks.
NerdWallet (NRDS)
NerdWallet (NASDAQ:NRDS) started in 2009 to provide personal financial advice online.
Since then, the company has grown to become one of the leading sources of financial advice. It offers tools and articles on various topics, including credit cards, banking, investing, and loans.
It also guides when to buy and sell specific investments. This information is presented in an easily digestible format that even those with no prior experience invested can understand.
In addition, NerdWallet offers regular updates on market trends to stay informed about changes that might affect your portfolio.
While looking at the company’s growth, it is safe to say that NerdWallet is tackling a variety of features. Earlier this year, the company expanded its portfolio by acquiring a consumer debt service provider for around $120 million.
On the publication date, Faizan Farooque 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.