Over the past few years, fintech companies have become increasingly popular because they have simplified monetary transactions and wealth management. Buy Now Pay Later (BNPL) schemes have also facilitated access to easy credit, while cryptocurrency-based services have added to the diversity of transactions.
The COVID-19 pandemic has proven to be a boon for the fintech industry in the United States due to the increasing use of digital payments, growing investments in blockchain technology, and expansion of e-commerce. According to a report by Vantage Market Research, the global fintech market is expected to reach $332.50 billion by 2028, growing at a 19.8% CAGR.
However, geopolitical tensions, decades-high inflation, rising interest rates, and concerns of an economic slowdown have all done their bit to dent investor confidence in fintech companies. Fintech stocks’ decline from the premium valuations they commanded during the pandemic’s peak is evident from ARK Fintech Innovation ETF’s (ARKF) 57% decline year-to-date.
Hence, while one should get rid of fundamentally weak fintech stock Block, Inc. (SQ), it could be wise to invest in promising industry participants Everi Holdings Inc. (EVRI) and Forrester Research Inc. (FORR) to cash in on the industry’s long-term growth prospects.
Stock to Avoid
Block, Inc. (SQ)
SQ is a technology company that creates tools to enable businesses, sellers, and individuals to participate in the digital economy. The company operates through two segments: Square and Cash App.
On August 24, 2022, it was announced that a class action lawsuit had been filed against SQ on allegations of negligent security after a breach of 8.2 million users’ data in the Cash App. The company disclosed the violation through an SEC filing four months after the incident without explaining the delay.
On August 19, the Consumer Financial Protection Bureau (CFPB) filed a petition asking a federal judge to force SQ to fully comply with the demands of an investigation related to Cash App’s handling of payments and disputes. The company is yet to provide all the documents and data requested by the bureau in August 2020 and August 2021.
SQ’s total net revenue declined 5.9% year-over-year to $4.40 billion for the second quarter that ended June 30, 2022. The company reported an operating loss of $213.77 million for the quarter, compared to $124.99 million in the year-ago period.
In addition, the company’s adjusted EBITDA for the quarter declined 47.9% year-over-year to $187.34 million. It reported an adjusted net income and adjusted net income per share of $110.74 million and $0.36, down 56.8% and 63.3% year-over-year, respectively.
Analysts expect SQ’s revenue for the fiscal year 2022 (ending December 2022) to decrease 0.6% year-over-year to $17.56 billion. The company’s EPS for the current year is expected to decline by 48.1% year-over-year to come in at $0.89.
Over the past year, the stock has plunged 74.6% to close the last trading session at $69.05.
SQ’s POWR Ratings are consistent with its dismal performance and bleak outlook. The stock has an overall D rating, equating to a Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It also has a D grade for Stability and Quality. It is ranked #89 out of 109 stocks in the Financial Services (Enterprise) industry. Click here to access SQ’s ratings for Growth, Momentum, Sentiment, and Value.
Stocks to Buy
Everi Holdings Inc. (EVRI)
EVRI is a creative entertainment and technology solutions provider for the casino and digital gaming industry. The company operates through two segments: Games and Financial Technology Solutions (FinTech). The latter provides gaming operators with financial technology products and services.
On May 3, 2022, EVRI announced the acquisition of Intuicode Gaming Corporation, a privately owned game development and engineering firm focused on Historical Horse Racing (HHR)games. With this acquisition, EVRI expects to leverage the additional expertise to accelerate entry and growth in the expanding HHR market.
On April 14, EVRI announced the acquisition of certain strategic assets of XUVI, LLC. With this acquisition funded by existing cash on hand, EVRI expects to enhance its capabilities and leverage consumer data to assist casino marketers and deliver intelligent interactions across all channels.
On April 12, EVRI announced its partnership with Scarlet Pearl Casino Resort to provide casino guests with crypto-to-cash solutions. This is expected to increase the usage by diversifying the type of available financial transactions in the age of digital currency.
For the fiscal 2022 second quarter ended June 30, 2022, EVRI’s revenue increased 14.3% year-over-year to $197.2 million. Operating income increased marginally from the previous-year quarter to $54.50 million. The company reported an adjusted EBITDA of $94.4 million, up 2.1% year-over-year. Its free cash flow improved 26.3% year-over-year to $49.50 million.
Analysts expect EVRI to report an EPS of $0.34 during the third quarter of the current fiscal, which indicates an increase of 385.7% year-over-year. The company’s revenue is expected to come in at $194.37 million for the ongoing quarter, up 15.5% year-over-year.
The stock has declined 0.3% over the past month to close the last trading session at $18.75.
EVRI’s POWR Ratings reflect this promising outlook. The stock’s overall A rating translates to a Strong Buy in our proprietary rating system. The stock has a grade of B for Sentiment and Quality.
EVRI is ranked #2 out of 109 stocks in the Financial Services (Enterprise) industry. Click here to see EVRI’s Growth, Value, Momentum, and Stability ratings.
Forrester Research Inc. (FORR)
FORR is an independent research and advisory services firm that sells its products and services through a direct sales force in various locations in the United States, Europe, the United Kingdom, Canada, the Asia Pacific, and internationally. The company operates through three segments: Research; Consulting; and Events.
In June, FORR introduced Forrester Decisions for Digital Business & Strategy, a new research service designed to assist digital leaders in the banking, insurance, and retail sectors. This is expected to gain traction among the company’s customers as those businesses seek to grow using digital customer experience as a business differentiator.
For the fiscal 2022 second quarter ended June 30, 2022, FORR’s revenue increased 15.2% year-over-year to $148.25 million. The company’s income from operations grew 58.2% from the year-ago value to $20.70 million. Net income rose 66.3% from the year-ago quarter to $13.87 million, while net income per share increased 67.4% year-over-year to $0.72.
Analysts expect FORR’s revenue for fiscal 2022 to grow 9.4% year-over-year to $540.98 million, while the EPS is expected to grow 10.1% from the year-ago value to $2.30. Also, the company’s revenue and EPS for the next year are expected to rise 8.1% and 15.9% year-over-year, respectively.
The stock has declined 11.6% over the past month to close the last trading session at $41.26.
FORR’s POWR Ratings reflect this promising outlook. The company has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. FORR is also rated an A for Growth, Sentiment, and Quality and a B for Value and Stability.
As a result, it tops the list of 109 stocks in the Financial Services (Enterprise) industry. Click here to see additional POWR Ratings for FORR.
SQ shares were trading at $69.29 per share on Wednesday afternoon, up $0.24 (+0.35%). Year-to-date, SQ has declined -57.10%, versus a -15.89% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant.
With a master’s degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities. More…