The start of the year has been rough for investors in financial technology (fintech) companies. Two months have passed, and all the enthusiasm of the 2020 rally has been extinguished. We are constantly being bombarded with negative news, ranging from high, persistent inflation to Russia’s invasion of Ukraine. Investor sentiment is at a low point. This is reflected in the performance of high-growth fintech stocks.
The negative bias against these names seems particularly bad. Last year, the Global X FinTech ETF (NASDAQ:FINX) lost 13.2% compared to the benchmark S&P 500, which was up 29.6%.
However, as Warren Buffett would say, be “greedy when others are fearful.” The long-term theme of e-commerce, digital payments, cryptocurrencies and no-branch banking remains intact. The rapid rate of adoption by younger generations and technological advancements are key drivers of this trend.
Millennials in particular are eschewing traditional banking. According to a survey by Cushman and Wakefield, around 94% of millennials actively use online banking services.
Most companies in the fintech sector have seen revenue growth in 2021. The average revenue growth for these companies in the last twelve months was about 32%. The selloff in fintech stocks was largely triggered by their valuations, which have come down heavily in recent weeks.
Due to the selloff, an investment in this sector could result in above-average returns. It’s impossible to say how these stocks will perform over the short term. However, if you believe the secular trend will continue, now is the time to buy.
Best FinTech Companies to Invest in for good returns in 2023
Here are my favorite beaten-down fintech stocks in the space that could see rapid growth from 2023 onward:
Fintech Stocks: PayPal (PYPL)
The largest stock on my list, PayPal, has a market cap of $116.4 billion. PayPal has been on a downtrend since late 2021. PYPL stock dropped from $272 to $99, losing close to a third of its value in a relatively short amount of time. This decline has created a buying opportunity for this fintech leader.
The company recently released its fourth-quarter 2021 earnings. Wall Street was pretty lukewarm with the results. The company slightly missed its earnings expectations, but beat revenue estimates. Earnings came in at $1.11 per share vs the $1.12 per share that analysts were expecting. Revenue, in the meantime, was $6.92 billion — slightly higher than the expected $6.87 billion.
What caused investors concern was management’s soft guidance number. PayPal had forecast revenue to grow between 15% and 17% for 2022. This was lower than the analyst-expected revenue growth of 17.9%. According to PayPal CFO Dan Schulman, the company took “a measured approach” to its forecast. In other words, it was being conservative.
In the long-term, I expect PayPal’s dominance of the space to continue. This remains a long-term pick of mine as a company with decent earnings and upside still intact.