Forget SOFI Stock! THIS is the best Fintech to buy now.
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Some fans of neo-banking firm SoFi technologies (NASDAQ:SOPHIE) may evangelize for the company, but is it the best fintech business to invest in? When we compare SoFi with rival fintech companies PayPal (NASDAQ:PYPL), the results may surprise you. Finally, the data points will undoubtedly convince you to choose PYPL shares over SOFI shares.
Sure, SoFi is known for being a disruptive financial market. That’s okay. You may also be impressed that SoFi Technologies was able to secure a bank charter.
Getting a bank charter put SoFi in the headlines, but at the end of the day, the bottom line is the bottom line. If PayPal delivers profits while SoFi falls short, it should be easy to pick the better fintech stock.
What happens to SOFI shares and PYPL shares?
Investors in SoFi Technologies and PayPal are in the red this year so far. Notably, SOFI stock has fallen from about $15 to $7, while PYPL stock has fallen from about $195 to $100. In other words, both shares have practically halved.
Still, a low price doesn’t always mean good value. PayPal has a trailing 12-month price-to-earnings (P/E) ratio of 53.5. It’s not a bottom line valuation, but at least PayPal has a P/E ratio. SoFi Technologies does not have one, which makes it more difficult to properly value the company.
In fact, SoFi’s net income loss of $95.8 million in 2022’s second quarter should be troubling for value-minded investors. Also problematic is SoFi’s student loan volume for the second quarter of 2022, which the company admits “was down to 25% of average pre-pandemic volume.” This suggests that SoFi Technologies is relying too heavily on its personal loan business while the company’s student loan segment falters.
On top of all that, Softbank (OTCMKTS:SFTBY) announced its plans to sell some or all of its 9% stake in SoFi Technologies. It is certainly not a positive sign.
PayPal offers a superior financial profile
While Softbank is selling its SoFi shares, Elliott Investment Management has been busy building up a stake in PayPal. So far, we know Elliott’s stake is worth $2 billion — a safe position, to say the least.
Ultimately, however, it’s the bottom-line results that should pique the interest of value-minded investors. SoFi Technologies fell short, but will PayPal make the grade?
The answer is yes, as PayPal reported non-GAAP earnings of 93 cents per share in 2022’s second quarter. This result beat the analyst consensus estimate by 9.4%.
The future also appears to be profitable for PayPal, as the company guided for third quarter 2022 non-GAAP earnings in the range of 94 cents to 96 cents per share.
What you can do now
Investing in forward-looking fintech companies is a good idea, as long as you choose the right companies. The idea is to be selective and always check the bottom line statistics before jumping into the trade.
It’s good that SoFi Technologies has a bank charter, but the company seems to have problems with its student loan business. Furthermore, there is evidence that PayPal made a profit while SoFi did not. Therefore, discerning fintech investors should look to PYPL shares instead of SOFI shares for strong upside potential.
At the date of publication, David Model did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Guidelines for publication.
