Fast-growing financial technology stocks have been among the biggest losers in the market downturn, but an analyst believes some of them may deserve a fresh look.
SMBC Nikko Securities America analyst Andrew Bauch follows a basket of high-growth fintech stocks, including Block Inc. SQ,
Marqeta Inc. MQ,
and Toast Inc. TOST,
and he notes that the media name in his coverage area was lower than 67% since the beginning of November, while the S&P 500 SPX,
had fallen 18% when the research note was published early on Thursday.
“From our perspective, it is clear that the primary variable for this sub-performance can be attributed to one of the most profit-focused markets we have seen in several years,” he wrote, acknowledging that many of the companies he follows “are in highly competitive sub-segments and / or have bold disruption ambitions ”and have either recently become profitable or have not yet done so.
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He added that he was “reluctant to call the macro / speed dynamics”, but believed that the sector “could reach the bottom on a relative basis.” He pointed to Global X FinTech ETF FINX,
writes that on the basis of business value in relation to turnover and business value to income before interest, taxes, depreciation and amortization (Ebitda), ETFs’ multiple premiums in relation to the S&P 500 are below the pandemic low and two standard deviations behind the three-year period. average.
The Global X FinTech ETF has fallen 47.9% so far this year, while the S&P 500 has lost 23.1%.
At the individual level, he sees some reason for optimism, noting that some names, such as Marqeta, Affirm Holdings Inc. AFRM,
Bill.com Holdings Inc. BILL,
and Nuvei Corp. NVEI,
NVEI,
have actually seen their gross profit estimates for 2023 come up since November, all while their stocks have lagged behind.
Bauch contrasts it with some more old-fashioned names, including Mastercard Inc. MA,
Global Payments Inc. GPN,
and NCR Corp. NCR,
who have seen 2023 estimate changes “below the median” while their shares have surpassed the median name in the category. Such names “may have a greater risk of being reconsidered lower,” he wrote.
He further expressed a bias towards stocks that may be less sensitive to cyclical trends.
“With the recession on the table, the calculator for investors has once again become
more complicated “, wrote Bauch. “At this point, looking at our coverage, our preferred portfolio will be tilted towards names that are exposed to non-cyclical / less cyclical end markets,” as AvidXchange Holdings Inc. AVDX,
Bill.com, Flywire Corp. FLYW,
and Paymentus Holdings Inc., PAY,
as he said “in a recession scenario would most likely be the last group to face economic headwinds.”
AvidXchange and Bill.com create software that helps businesses automate back office finance features. Flywire strives to improve the process of sending international payments, while Paymentus offers tools aimed at modernizing bill payments.
