The fintech (financial technology) industry started to make headway during the pandemic. There was economic stress, and the lockdowns influenced the need to manage our finances digitally (and remotely).
BNPL (Buy Now, Pay Later) stocks represent companies that offer short-term loans; adding to the appeal is that they usually have fixed installment payments without interest or hidden charges.
BNPL loans can be profitable for the fintech market but carry the risk of repayment default. Some companies utilize AI to evaluate the loans and lessen this risk, which is also a natural risk for any loan. That shouldn’t deter investors from considering a fintech stock as a portfolio addition.
The best “Buy Now, Pay Later” stocks will only continue to grow as the demand for those types of loans increases as well. These stocks are in it to win and win big…
Block Inc (SQ)
Formerly known as Square, Block (SQ) is a global tech firm focusing on providing financial services. Its comprehensive platform comprises various individual services for business growth, including the popular “Cash App.” SQ acquired Afterpay in 2022 for $29 billion and integrated its BNPL platform into both Square and Cash App. This integration enables customers to make interest-free installment payments on SQ’s loans over a six-week period, driving a 40% increase in spending per transaction and a 50% increase in shopping frequency. This strategic acquisition has positioned SQ as a strong contender in the evolving “Buy Now, Pay Later” landscape, bolstering its potential as an investment.
SQ is currently down year-to-date by 8.08%, is trading near the bottom of its existing 52-week range, has a 1.05x PEG (price/earnings to growth) ratio, and a TTM (trailing twelve-month) asset growth measure of 7.58%. At its Q2 2023 earnings call, SQ exceeded analysts’ projections on EPS and revenue by 5.09% and 8.49%, respectively. SQ also reported positive year-over-year growth in revenue (+25.67%), net income (+41.11%), EPS (+44.44%), and net profit margin (+53.18%). For the current fiscal quarter, SQ is expected to post $5.2 billion in sales at $0.46 per share, with a projected 3-5 year EPS growth rate of 26.3%. With a 10-day average volume of 9.10 million shares, SQ has a median price target of $88, with a high of $110 and a low of $34.98; this suggests the potential for a price upside of over 90% from its current price.
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Affirm Holdings Inc (AFRM)
Affirm Holdings Inc. (AFRM) excels at crafting financial products that boost business sales and encourage responsible consumer spending and saving. Renowned for its BNPL loans, AFRM offers clear, interest-free repayment options with no hidden fees. AFRM’s revenue streams encompass its merchant discount rates, interchange fees from its virtual credit card, simple interest on long-term loans, and gains from third-party loan sales. This robust financial model positions AFRM as an attractive stock choice.
At Q2 2023’s earnings call, AFRM’s CFO Michael Linford stated, “Despite significant changes in interest rates and consumer demand, we still delivered good credit results, unit economics, and GMV (gross merchandise volume) growth. We also demonstrated that the business can continue to expand profitably even in a high interest-rate environment.” AFRM met analysts’ expectations on EPS and reported revenue of $445.82 million vs. $406.08 million as expected (a 9.79% win); it also reported year-over-year revenue
growth of 7.39%. AFRM is expected to report $429 million in sales for the current fiscal quarter. AFRM is currently up by 97.93% year-to-date but is trading near the middle of its 52-week range, leaving room for upside. With a 10-day average volume of 20.75 million shares, AFRM has an average price target of $16, with a high of $24 and a low of $6, suggesting a potential price jump of over 25% from its current position.
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PayPal Holdings Inc (PYPL)
PayPal Holdings Inc. (PYPL) has been a long-time prominent figure in the world of digital payments, offering fintech assets like Venmo and its PayPal “digital wallet.” PYPL’s BNPL service, launched in 2020, empowers consumers to make interest-free purchases up to $1,500, repayable in four installments, or extend larger purchases over 24 months with interest. With over 200 million loans issued to over 30 million customers across eight global markets by mid-2023 (after BNPL loans surged in 2022), PYPL has positioned itself as a market leader and a compelling investment choice; I’ll lend a spotlight to that.
PYPL is down year-to-date by 12.24%, trading near the bottom of its existing 52-week range, which leaves plenty of room for a price upside. With a free cash flow of $3.35 billion, PYPL has a PEG ratio of 0.56x and a positive ROE (return on equity). For its Q2 2023 earnings call, PYPL reported EPS that met analysts’ expectations while beating revenue slightly by 0.20%; it also reported year-over-year growth in critical areas like revenue (+7.07%), net income (+401.76%), EPS (+417.24%), and net profit margin (+381.84%). For the current fiscal quarter, PYPL is projected to report $7.3 billion in sales at $1.22 per share, with an expected 3-5 year EPS growth rate of 13.7%. With a 10-day average volume of 14.67 million shares, PYPL has a median price target of $85, with a high of $126 and a low of $55; this indicates the potential for a more than 101% leap from its current trading price.
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