Should You Buy Fintech Stocks in February 2023?

Investing in fintech stocks may be a risky proposition for conservative investors. But fintech stocks also may help you deliver outsized gains.

| More on:

Image source: Getty Images

Fintech companies are those that leverage tech to provide a portfolio of financial products and solutions, ranging from digital banking to online payment processing. The expansion of the digital economy, alongside the shift in consumer and corporate preferences, has accelerated in the last 10 years. As expected, the demand for fintech platforms is also rapidly rising.

These organic tailwinds have allowed fintech companies to grow sales at an enviable pace between 2020 and 2021, resulting in sky-high valuations. However, last year, several fintech stocks experienced a pullback in share prices due to slowing demand, rising interest rates, and red-hot inflation.

For instance, fintech stocks such as Nuvei, Lightspeed Commerce, and Block (NYSE:SQ) fell by 58%, 62%, and 61%, respectively, in 2022, trailing the broader markets by a wide margin.

Fintech stocks are a high-risk proposition

Investors need to have the appetite to endure volatility in share prices while investing in growth stocks. While fintech stocks delivered market-thumping returns amid the COVID-19 pandemic, they are currently trading at a much lower multiple. The pandemic drove online sales higher, and the rise in contactless payment options meant fintech companies enjoyed a period of higher-than-expected demand.

But as the global economy is enduring a slowdown, lower consumer spending and tepid growth among lenders will impact the top line of fintech companies. For instance, Block increased its sales from US$4.7 billion in 2019 to US$17.6 billion in 2021. Analysts expect the global payment solutions provider to end 2022 with sales of US$17.5 billion, a decline of 1% year over year.

Similarly, Block’s adjusted earnings are forecast to narrow from US$1.71 per share in 2021 to US$1.07 per share in 2022.

SQ stock surged over 600% between March 2020 and February 2021. However, it’s currently down 74% from all-time highs. While growth stocks typically increase your wealth multi-fold in a bull run, they trail the broader market when sentiment turns bearish.

Due to a rapidly expanding addressable market, fintech companies have to wrestle with rising competition as well, making it difficult for investors to identify a long-term winner.

Which fintech stock should you buy right now?

Despite the recent carnage surrounding tech stocks, several companies might still seem expensive if they are reporting consistent losses. But investors should also realize that timing the market is impossible. Instead, the downturn should be viewed as an opportunity to buy stocks at a discount.

Several investors may have missed the bus while investing in growth companies such as Amazon as they wait for it to trade at a reasonable valuation. Yes, it is necessary to compare a stock’s valuation with its growth metrics. But you need to look beyond traditional valuation ratios while investing in fintech stocks.

One quality fintech stock I would be watching closely is Block. Valued at a market cap of US$45 billion, Block is on track to increase sales by 14% to US$20 billion in 2023. Comparatively, its adjusted earnings might expand to US$1.72 per share in the next 12 months. So, SQ stock is priced at 2.2 times forward sales and 43 times forward earnings.

Analysts remain bullish on SQ stock and expect it to surge 20% in the next 12 months.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nuvei. The Motley Fool recommends, Block, and Lightspeed Commerce. The Motley Fool has a disclosure policy.

More on Tech Stocks

funds, money, nest egg
Tech Stocks

TFSA Investors: 2 TSX Stocks for a Legit Shot at $1 Million in 20 Years

Undervalued TSX tech stocks such as Neighbourly Pharmacy can help investors to turn a $100,000 investment into $1 million in…

Read more »

Dividend Stocks

TFSA: 3 Value Stocks to Buy in April

The March dip is a synopsis of the mild recession banks anticipate as high interest rates trickles down. It is…

Read more »

Growing plant shoots on coins
Tech Stocks

Got $5,000? These Are 2 of the Best Growth Stocks to Buy Right Now

If you've got $5,000 to invest, buying growth stocks like Lightspeed Commerce and Microsoft is a smart decision.

Read more »

edit Colleagues chat over ketchup chips
Tech Stocks

2 Easy TSX Stocks for Beginners in April 2023

You don’t need to think twice about loading up on these two Canadian stocks in April.

Read more »

calculate and analyze stock
Tech Stocks

Growth Stocks: A Once-in-a-Decade Opportunity to Get Rich

Growth stocks are generally cheap now. So, this year is a good opportunity to shop for growth stocks, perhaps through…

Read more »

grow money, wealth build
Tech Stocks

$10,000 Invested in These Growth Stocks Could Make You a Fortune Over the Next 10 Years

Growth stocks such as Dollarama and Chewy are well poised to deliver outsized gains to long-term investors.

Read more »

online shopping
Tech Stocks

Is Shopify Stock a Buy in March?

Shopify stock has had a volatile run, but fundamentals are strong, and valuations are much lower after its 71% decline.

Read more »

data analyze research
Tech Stocks

2 Top Stocks to Buy in March 2023

Given their solid financials and high-growth prospects, these two stocks are excellent buys right now.

Read more »