Financial technology, or fintech, is full of many companies competing for market share. It’s for good reason. According to Fortune Business Insights, the global financial technology market is worth approximately $300 billion today and will reach more than $1.1 trillion by 2032.
The problem for investors is that since no one can reliably tell you which companies will dominate the sector a decade from now, many promising stocks in the sector have languishing prices because Wall Street doesn’t trust them. Conversely, it creates an opportunity for substantial long-term investment returns for those who ultimately support good businesses.
These three companies are trading at incredibly low stock prices, despite their enormous long-term potential and strong business results. Let’s check them.
Digital banking and fintech company SoFi Technologies(NASDAQ:SOFI) continues to produce excellent results quarter after quarter. The company got its start in the student loan business, which apparently helped it develop lasting appeal among young people as they become ordinary citizens with banking needs. SoFi surpassed 8.1 million banking customers in the first quarter, driven by a 44% year-over-year jump.
Customers seem to like SoFi’s “all-in-one app,” which offers financial education, lending products, banking and investing services, and payments all in one place. SoFi’s digital footprint completely eliminates the need for physical bank branches, and the app’s 4.8-star rating from over 340,000 reviews speaks volumes about customer satisfaction. SoFi grows with new users, but can also sell different products and services to customers at no additional cost once users are on the app.
SOFI Earnings Chart (TTM)
SoFi’s earnings (net interest income) began to explode after the company officially received its banking charter in 2022. The stock’s valuation via its price/book value ratio has declined steadily over time. Now, at a more reasonable 26% premium to book value, SoFi could move higher if the company’s growth continues at this breakneck pace.
Buy now, pay later (BNPL) emerged a few years ago as a rival to credit cards, in part because it is a more transparent method of consumer borrowing. Affirm(NASDAQ:AFRM) is one of the leading players in the sector, thanks in particular to partnerships across the retail sector, notably with Amazon, Shopifyand more than 292,000 other merchants. Affirm uses data to individually underwrite each transaction as a loan, which helps Affirm prevent customers from overborrowing. The company charges no late fees, so it’s in Affirm’s best interest for customers to repay their loans quickly.
Affirm’s growth has been rapid; revenue grew 51% year over year in its most recent quarter. Despite competition from other BNPL companies, there are several reasons to love Affirm. The BNPL industry is poised for considerable growth in the coming decade. According to Grand View Research, BNPL will grow over 24% annually in the US (where Affirm primarily operates) through 2030.
AFRM Earnings Chart (TTM)
Additionally, Affirm goes offline to attract additional customer transactions with the Affirm Card. It offers users the dual ability to spend via debit or retroactively create installment loans at the point of sale. The card has amassed more than 1 million users since its launch in 2021. Like many other fintech stocks, Affirm’s valuation has declined as the company grows and the stock price falls. Investors bullish on the BNPL space should view Affirm as a standalone innovator with the potential to grow for the foreseeable future.
Most people won’t know what Marqueta(NASDAQ:MQ) it is, but the company plays a crucial role as a modern card issuer in the fintech space. Essentially, Marqeta’s technology connects fintech applications to existing payment networks, enabling businesses to create innovative payment products that would not otherwise be possible. For example, Marqueta powers payment cards that Instacart gives to buyers. The technology releases funds from the card only when criteria are met, such as paying for the appropriate items when placing an order.
Marqeta collects a small portion of each transaction through its technology. The advantage of Marqeta is that its technology gets its foot in the door to some of the fastest growing sectors in the financial industry, including cryptocurrency, buy now, pay later and digital banking. Marqeta’s payments volume grew 33% year-over-year in the first quarter, and the massive size of the payments industry means growth could continue for a long time.
MQ Cash and Short-Term Investment Chart (Quarterly)
The valuation of the title became complicated after the renewal of Marqeta’s contract with Block (its largest customer) in a deal that changed how revenue was recognized. So consider this instead. Marqueta has a market capitalization of only $2.7 billion today. The company has $1.2 billion in cash on its balance sheet, or 44% of its market value! In other words, Wall Street doesn’t place much value on the company itself. Time may prove this to be a mistake, as innovation is expected to continue to fuel demand for new payment solutions, and Marqeta plays a vital role in this.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Justin Pope holds positions at Affirm and Marqeta. The Motley Fool holds positions and recommends Amazon, Block, and Shopify. The Motley Fool recommends Instacart and Marqeta. The Mad Motley has a disclosure policy.
