Equity markets continue to remain vulnerable, given massive headwinds surrounding global economies. For example, the U.S. is grappling with rising inflation rates, while the ongoing war between Russia and Ukraine is driving commodity prices higher. Additionally, the supply chain disruptions are here to stay given the rising COVID-19 cases in China, which have already invoked province-wide lockdowns in the country.
As a result, growth stocks have been seeing red lately, as represented by the Vanguard Growth ETF (VUG), which is down more than 16% year-to-date (YTD), compared to the S&P 500 which is down 9.3%. Fintech stocks, many of which are considered growth stocks, have not been spared from this sell-off. Stocks such as SoFi (SOFI) and Nu (NU) are trading down 48% and 36% YTD, respectively.
Today I’ll analyze and compare both of these fintech stocks to determine which is currently a better contrarian investment.
SoFi
One of the most popular fintech platforms in the world, SoFi went public in 2020. SOFI stock touched a record high of $25 in January 2021 and is currently trading at $8.20, making it attractive to contrarian and growth investors.
Sofi has three business segments that include financial services, lending, and the Galileo technology platform. In Q4 of 2021, SoFi increased its member count by 87% while sales were up 54% year over year. In the last two years, the company managed to increase its member count by almost 300% to 3.5 million.
SoFi’s financial services business increased revenue by 400% in Q4, showcasing the increasing expansion of its ecosystem. It recently pumped in $1.1 billion to acquire Technisys allowing SoFi to gain traction in the financial infrastructure vertical.
SoFi expects to rake in $180 million in adjusted EBITDA in 2022 while its top-line is forecast to grow by 51% to $1.53 billion this year.
Nu Holdings
Valued at a market cap of $30 billion, Nu Holdings has increased sales from $208 million in 2018 to $1.7 billion in 2021. A Brazil-based financial services company, Nu is targeting the $1 trillion banking market in the country. It already has a presence in Brazil, Mexico, and Columbia and aims to gain traction in other Latin American countries.
In 2021, Nu increased its customer base by 62% year over year to 53.9 million, after adding 5.8 million customers in Q4. Its sales more than tripled to $636 million in Q4 and the average revenue per active customer was up 5.6%. The company’s deposits were up 86% at $9.7 billion while its interest earnings portfolio surged by 344% to $2 billion.
Analysts covering NU stock expect it to increase sales by 75% to $3 billion in 2022 and by 50% to $4.5 billion in 2023.
The final takeaway
At the time of writing, SOFI stock is valued at a forward price to sales multiple of 4.3x and the ratio for NU stock is much higher at 10.3x. While NU stock is growing at a faster pace it might also decline rapidly if market sentiment turns bearish. Further, SOFI’s stellar EBITDA estimates and higher upside potential make it a better buy right now.
SOFI shares were trading at $8.35 per share on Wednesday morning, up $0.15 (+1.83%). Year-to-date, SOFI has declined -47.19%, versus a -9.04% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditya Raghunath
Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist.
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