The consumer financial services sector is booming thanks to digital access and the rise of fintech. Fintech companies focus on customer experience, using Big Data and AI to offer personalized services. People are increasingly trusting neobanks, and the fintech market presence is expected to grow significantly in the near future.
Therefore, as FinTech revolutionizes the banking sector, it may be wise to buy fundamentally strong consumer fintech stocks like PayPal Holdings, Inc. (PYPL), NerdWallet, Inc. (NRDS), and Qifu Technology, Inc. (QFIN), which are currently a bargain.
Fintech companies benefit from resilient spending, income gains, and high-interest rates. They focus on using technology to develop specialized financial products, such as lending and savings services, and simplify deposits, bill payments, and money transfers. Notably, in the U.S., an estimated 87.4% of all transactions will be cashless in 2024.
Consequently, mobile apps now let users handle various financial tasks on the go. As a result, FinTech is set to replace many traditional banking processes. Robo-advisors offer automated financial advice, shaking up traditional advisory services. By 2027, FinTech is expected to disrupt over 28% of traditional banking services.
Furthermore, this year, the fintech market will exceed $340 billion, and by 2032, it will nearly quadruple to $1.15 trillion, with a remarkable CAGR of 16.5%. This growth will drive the emergence of new fintech sectors and banking services. Additionally, the global financial services market is projected to grow to $33.31 trillion by 2026 and $45.15 trillion by 2031, with CAGRs of 7.4% and 6.3%, respectively.
Considering these conducive trends, let’s analyze the fundamental aspects of the three Consumer Financial Services picks, beginning with the third choice.
Stock #3: PayPal Holdings, Inc. (PYPL)
PYPL operates a technology platform that enables digital payments on behalf of merchants and consumers worldwide. It operates a two-sided network at scale that connects merchants and consumers, allowing its customers to connect, transact, and send and receive payments both online and in person.
On June 11, 2024, PYPL announced that PayPal USD (PYUSD) is now available on the Solana blockchain, offering faster and cheaper transactions for consumers. This integration aims to enhance digital commerce by leveraging Solana's high-speed, low-cost transaction capabilities.
On March 17, 2024, PYPL announced that Tap to Pay on iPhone is now available for all Venmo business profile and PayPal Zettle users in the U.S., allowing them to accept contactless card and digital wallet payments directly on their iPhones without additional hardware. This new feature aims to help small businesses adapt to cashless trends and streamline payment processing.
In terms of the trailing-12-month levered FCF margin, PYPL’s 21.37% is 22.4% higher than the 17.47% industry average. Its 5.21% trailing-12-month Return on Total Assets is 390.8% higher than the 1.06% industry average. Additionally, its 21.40% trailing-12-month Return on Common Equity is 101.3% higher than the 10.63% industry average.
For the first quarter that ended March 31, 2024, PYPL’s net revenues increased 9.4% year-over-year to $7.70 billion. Its non-GAAP operating income grew 14.7% from the year-ago value to $1.40 billion.
The company’s non-GAAP net income and non-GAAP EPS were $1.16 billion and $1.08, up 20.4% and 27.1% year-over-year, respectively. In addition, the company’s free cash flow stood at $1.76 billion, an increase of 76.3% from the previous year’s quarter.
For the quarter ending June 30, 2024, PYPL’s revenue is expected to increase 6.9% year-over-year to $7.79 billion. Its EPS for fiscal 2025 is expected to increase 10.6% year-over-year to $4.56. It surpassed the Street revenue estimates in three of the trailing four quarters. Over the past six months, the stock has gained 8.1% to close the last trading session at $64.77.
PYPL’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Sentiment. It is ranked #18 out of 44 stocks in the B-rated Consumer Financial Services industry. To see PYPL’s Growth, Value, Momentum, Stability, and Quality ratings, click here.
Stock #2: NerdWallet, Inc. (NRDS)
NRDS operates a digital platform that provides consumer-driven advice about personal finance by connecting individuals and small to mid-sized businesses with financial product providers in the United States, the United Kingdom, Australia, and Canada.
In terms of the trailing 12-month gross profit margin, NRDS’ 90.81% is 53% higher than the industry average of 59.34%. Similarly, its 1.32x trailing-12-month asset turnover ratio is 508.8% higher than the industry average of 0.22x.
For the fiscal first quarter that ended March 31, 2024, NRDS reported revenues of $161.90 million. Its non-GAAP operating income rose 178.9% year-over-year to $10.60 million. Its adjusted EBITDA stood at $25.50 million, up 22% year-over-year. In addition, the company’s cash and cash equivalents of $110.90 million indicate an increase of 10% from the same period the previous year.
Street expects NRDS’ revenue for the quarter ending June 30, 2024, to increase 4.7% year-over-year to $149.97 million. Its EPS for fiscal 2025 is expected to grow by 111.5% year-over-year to $0.48. Over the past nine months, the stock has gained 65.5% to close the last trading session at $13.21.
It’s no surprise that NRDS has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Quality. Within the same industry, it is ranked #8. Beyond what we stated above, we also have given NRDS grades for Growth, Value, Momentum, Stability, and Sentiment. Get all the NRDS ratings here.
Stock #1: Qifu Technology, Inc. (QFIN)
Headquartered in Shanghai, the People's Republic of China, QFIN and its subsidiaries operate a credit-tech platform under the 360 Jietiao brand in the People's Republic of China. It provides credit-driven services and platform services.
In terms of the trailing-12-month EBITDA margin, QFIN’s 47.36% is 109.3% higher than the 22.63% industry average. Its 26.81% trailing-12-month net income margin is 16.4% higher than the 23.04% industry average. Additionally, its 0.38x trailing-12-month asset turnover ratio is 76.3% higher than the 0.22x industry average.
QFIN’s total net revenue for the first quarter which ended March 31, 2024, increased 15.4% year-over-year to RMB4.15 billion ($572.35 million). Its non-GAAP income from operations rose 33.7% over the prior-year quarter to RMB1.41 billion ($194.46 million).
For the same quarter, the company’s non-GAAP net income attributable to shareholders of QFIN and non-GAAP net income per ADS attributable to ordinary shareholders of QFIN came in at RMB1.21 ($166.88 million) and RMB7.58, respectively, up 23.3% and 28% year-over-year.
Analysts expect QFIN’s EPS for the fiscal 2024 to increase 12.5% year-over-year to $4.27. Its revenue for fiscal 2025 is expected to increase 8.1% year-over-year to $2.45 billion. QFIN’s stock has gained 37.5% over the past six months to close the last trading session at $20.12.
QFIN’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It is ranked #2 in the Consumer Financial Services industry. It has a B grade for Value and Quality. To access QFIN’s grades for Growth, Momentum, Stability, and Sentiment, click here.
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PYPL shares were trading at $62.93 per share on Wednesday afternoon, down $1.84 (-2.84%). Year-to-date, PYPL has gained 2.48%, versus a 14.13% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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