PYPL, SOFI, or SQ: Which Fintech Stock Scores Wall Street’s “Strong Buy” Rating?
Macroeconomic uncertainty is weighing on consumer spending and consequently impacting fintech companies. That said, the long-term growth story of the companies in the fintech space looks bright, given the rise in e-commerce and continued shift toward digital payments. Keeping this backdrop in mind, we used TipRanks’ Stock Comparison Tool to place PayPal (PYPL), SoFi Technologies (SOFI), and Block (SQ) against each other to find the fintech stock that has scored Wall Street’s Strong Buy rating.
PayPal Holdings (NASDAQ:PYPL)
Shares of PayPal have risen over 17% so far this year. Investors are encouraged by the company’s transition efforts to revive its business following a post-pandemic slump and rising competition in the fintech space from tech giants like Apple (AAPL) and Alphabet (GOOGL).
Last month, PayPal reported strong Q2 results and raised its full-year profit outlook. The company’s adjusted EPS jumped 36% to $1.19, driven by an 8% rise in revenue and an impressive 231 basis points expansion in the adjusted operating margin. The margin improvement reflected the company’s restructuring efforts, including aggressive cost cuts and headcount reduction.
Looking ahead, the company is increasing its investments to support high-growth initiatives, innovation, and marketing campaigns for both its PayPal and Venmo brands.
Is PYPL a Buy or Sell?
On August 20, Edward Jones analyst Logan Purk reiterated a Hold rating on PayPal. Purk noted that the company’s strategy of focusing on its larger accounts has resulted in consistent growth in payment volumes. However, he added that new account growth, which was expected to moderate, has actually declined following the adoption of this strategy.
Also, profit per transaction has dropped after initially stabilizing in previous quarters due to rapid growth in PayPal’s low-margin Braintree offering. Accordingly, the analyst is sidelined on the stock due to his reduced growth outlook.
Meanwhile, Daiwa analyst Kazuya Nishimura upgraded PayPal from Hold to Buy and raised the price target to $72 from $68. The analyst turned bullish on the stock, as he believes that the company’s initiatives are rapidly generating visible results, like Braintree’s enhanced profitability.
Overall, PayPal earns a Moderate Buy consensus rating based on 18 Buys and 16 Holds. The average PYPL stock price target of $75.96 implies about 5.4% upside potential.
SoFi Technologies (NASDAQ:SOFI)
Shares of digital bank and financial services platform SoFi Technologies have declined about 23% even as the company continues to deliver upbeat financial performance. Investors are concerned about the impact of high interest rates on the company’s lending business and credit quality.
Despite a challenging backdrop, SoFi topped Q2 estimates and raised its full-year outlook. The company’s revenue grew 20% year-over-year to $598.6 million. Moreover, the company swung to earnings of $0.01 per share from a loss of $0.06 in the prior-year quarter.
Moreover, the company continued to win more customers and added 643,000 new members in the quarter. It ended Q2 2024 with about 8.8 million members, reflecting an impressive 41% year-over-year growth.
What Is the Price Target for SOFI Stock?
Earlier this month, Needham analyst Kyle Peterson reiterated a Buy rating on SOFI stock with a price target of $10 following meetings with the company’s management. The analyst is bullish on SoFi Technologies based on the company’s robust lending business, stable funding, and a focus on super-prime borrowers.
Peterson contended that the market is underappreciating the potential of the company’s Tech and Financial Services platforms. In its Q2 results, SoFi highlighted that the Financial Services and Tech platforms now account for 45% of its overall adjusted net revenue compared to 38% a year ago.
Overall, Wall Street has a Hold consensus rating on SoFi Technologies stock based on five Buys, seven Holds, and three Sell recommendations. The average SOFI stock price target of $8.27 implies nearly 8% upside potential.
Block (NYSE:SQ)
Fintech company Block operates through two ecosystems: Square, which offers digital financial solutions to merchants, and Cash App, a peer-to-peer payments platform. Block stock has declined about 16% year-to-date due to concerns about a slowdown in the company’s revenue growth rate and the impact of macro pressures on its key businesses.
That said, the stock has trended higher by more than 9% over the past month as investors are recognizing the company’s efforts to revive its business and improve its profitability. Block recently announced mixed Q2 2024 results and raised its full-year outlook to reflect its improved expectations for the remainder of the year.
Remarkably, Block’s Q2 adjusted EPS surged more than 132% to $0.93, fueled by higher revenue and operating margin expansion. The company is focused on driving further improvement in its business by streamlining operations, enhancing its marketing strategy, and scaling up its distribution network.
Is SQ Stock a Good Buy Now?
On August 16, Bank of America Securities analyst Jason Kupferberg reiterated a Buy rating on Block stock with a price target of $82.
Following a meeting with the company’s investor relations team, the analyst noted that the company is re-focusing on enhancing its day-to-day execution, especially in the Square business. He added that the company is striving to revive the acceleration in Square GPV (gross payment volume), which he thinks is the most critical metric to drive shares higher.
Kupferberg believes that the company’s new products and go-to-market initiatives will start showing results next year. He also stated that the “high-quality business model” of SQ is underappreciated by the market and the stock is undervalued.
With 20 Buys, three Holds, and one Sell recommendation, Block stock scores a Strong Buy consensus rating. At $87.94, the average SQ stock price target implies 34.1% upside potential from current levels.
Conclusion
Among the three fintech stocks discussed above, Wall Street is highly bullish on Block’s growth prospects. Analysts see higher upside potential in SQ stock than in PYPL and SOFI shares. Most analysts see the pullback in Block stock as an attractive opportunity to gain exposure to this fintech player and benefit from its long-term growth opportunities.
