Fintech stocks experienced a spectacular run in 2020 as the COVID-19 pandemic accelerated demand for their product and services. However, multiple macro-economic factors have now dragged share prices considerably lower in the last six months.
Investors are worried about the steep valuation surrounding growth stocks, rising inflation rates, the possibility of interest rate hikes, supply chain disruptions, and the ongoing conflict between Russia and Ukraine. As a result, shares of SoFi (SOFI) and Lending Tree (TREE) are down 61% and 77% from all-time highs.
SoFi is valued at $8.29 billion by market cap while LendingTree is trading at a market cap of $1.27 billion. Let’s see which of these two beaten-down fintech stocks should be on your buying list right now.
The bull case for SoFi
SoFi announced its Q4 results last week and reported revenue of $286 million with an adjusted loss of $0.15 per share. Analysts tracking the stock forecast SoFi to report sales of $279 million and a loss of $0.17 per share in the December quarter. SoFi reported sales of $171.49 million in Q4 of 2020.
The company increased adjusted sales by 54% despite the extension of the federal student loan repayment moratorium. SoFi’s annual adjusted net revenue also surpassed $1 billion for the first time ever while adjusted EBITDA stood at $5 million in Q4. SoFi reported an adjusted EBITDA of $30 million in 2021 and has been profitable on an EBITDA basis for six consecutive quarters.
It estimates sales between $310 million and $320 million which were higher compared to Wall Street estimates of $306.32 million. SoFi attributed its strong results to a diversified business model enabling the company to benefit from competitive advantages in the last year.
The bull case for LendingTree
Lending Tree has increased sales from $746 million in 2018 to $1.09 billion in 2021 while operating profit rose from $69 million to $227 million in this period.
In Q4 of 2021, its home segment sales rose by 8% to $96.3 million while its profit grew by 5% to $33.8 million. Comparatively, consumer segment sales and insurance segment sales stood at $96.4 million and $65.4 million respectively in Q4. While consumer segment revenue more than doubled, insurance sales fell by 24% year over year.
LendingTree forecasts Q1 sales between $280 million and $290 million in Q1 while full-year sales are estimated between $1.2 billion and $1.25 billion. The company has forecast adjusted EBITDA between $26 million and $31 million in Q1 while the metric is forecast between $160 million and $180 million in 2022.
The verdict
Wall Street forecasts SoFi sales to rise by 51.3% to $1.53 billion in 2022 and by 42% to $2.17 billion in 2023. Comparatively, its adjusted loss is forecast to narrow from $1 per share in 2021 to $0.17 per share in 2023. SOFI stock is trading at a forward price to 2022 sales multiple of 5.2x.
Comparatively, analysts expect LendingTree sales to rise by 11.5% to $1.22 billion in 2022 and by 14.7% to $1.4 billion in 2023. Comparatively, its adjusted earnings per share are expected to rise at an annual rate of 77% in the next five years.
While SoFi is growing at a higher pace, it is still reporting an adjusted profit and is a high-risk bet in a volatile environment. TREE stock is valued at a price to 2022 sales multiple of 1.1x and a price to earnings ratio of 29 which is very reasonable. Therefore, I would expect LendingTree to outperform SoFi in the next year, given its attractive valuation and sustainable growth rates.
SOFI shares fell $0.09 (-0.90%) in premarket trading Monday. Year-to-date, SOFI has declined -37.63%, versus a -9.08% 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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