Which Fintech Stock is a Better Buy?
The desire to democratize access to financial and investment tools has led to the creation of several companies over the past decade. These companies are part of the rapidly growing fintech space and are well positioned to increase investor wealth over the long term.
Given these age-old tailwinds, today we’ll take a look at two fintech giants, SoFi (SOFI) and Loan Club (CL). While SoFi is a recent IPO, Lending Club has been listed on the equity markets for over seven years.
The ongoing economic recovery and the switch to digital solutions make these two actions attractive bets for 2021 and beyond. But which is the better of the two stocks to buy now?
SoFi lost steam after its profits
SoFi went public in December 2020 and has since gained 34% in total market value. However, the company is also trading 46% below its all-time high, allowing investors to buy the downside. SoFi shares fell after the company released its second quarter results this month.
In the second quarter of 2021, SoFi sales more than doubled to $ 231.1 million while his adjusted loss per share was $ 0.48. or $ 165.3 million. Analysts expected the company to report second-quarter sales of $ 231.27 million and a loss per share of $ 0.05. We can see that the massive loss of profits did not impress investors, leading to the pullback.
In the quarter ended in June, the company’s new accounts stood at $ 78.9 million, up from less than $ 36 million the year before.
SoFi has three main sectors of activity which include its loans, personal loans and residential mortgages. It also provides financial services such as cash management, credit cards as well as an online brokerage platform, among others.
Analysts follow the action expect sales to increase from $ 971 million in 2021 to $ 1.47 billion in 2022. Its loss per share is also expected to drop from $ 0.5 to $ 0.1 during this period. We can see that the SoFi stock is trading at a futures price for a multiple of 7.61x, which is not too high for a high growth company.
LendingClub significantly underperformed broader markets
A company that harnesses artificial intelligence and data to deliver unsecured personal loans, LendingClub is valued at a market cap of $ 2.76 billion. LendingClub aims to expand its lending business to include auto loans as well as providing checking accounts to customers.
In early 2021, LendingClub acquired Radius Bank, which enabled the former to reduce loan financing costs as it now has access to the latter’s cheap deposits. In a nutshell, LendingClub finances its loans through these deposits instead of partnering with third party financial institutions for origination.
LendingClub ended the June quarter with 3.5 million members, allowing it to make $ 2.7 billion in total loans. It reported sales of $ 204 million with adjusted second quarter earnings of $ 0.09 per share. While the company’s sales jumped from $ 487 million in 2017 to $ 655 million in 2019, they fell to $ 243.5 million in 2020.
Analysts expect more than double sales to $ 772.54 million in 2021 and 42.5% to $ 1.1 billion in 2022. This will allow LendingClub to improve its profit margin from a loss of $ 1.54 per share in 2020 to a earnings per share of $ 0.72 in 2022.
LendingClub has significantly underperformed the broader markets and has lost 76% of its market value over the past seven years.
We can see that LendingClub is trading at a reasonable valuation and is heading towards profitability. However, my choice between these two actions is SoFi because it is discount trade 90% to consensus estimates.
SOFI stock was trading at $ 14.14 per share on Friday afternoon, up $ 0.32 (+ 2.32%). Since the start of the year, SOFI has gained 13.67%, compared to a 19.44% increase in the benchmark S&P 500 during the same period.
About the Author: Aditya Raghunath
Aditya Raghunath is a financial journalist who writes on business, public equity and personal finance. His work has been published on multiple digital platforms in the United States and Canada, including The Motley Fool, Finscreener, and Market Realist. Following…