SoFi, Upstart, and PayPal all look undervalued relative to their growth potential.
Many fintech stocks soared in 2020 and 2021 as pandemic-driven digital transactions, stimulus checks, and low interest rates generated strong tailwinds for the sector. But in 2022 and 2023, a lot of those stocks tumbled as inflation, rising rates, and other macroeconomic headwinds curbed consumer spending and crushed higher-growth stocks.
Some of those stocks bounced back in 2024 as interest rates declined, but many of them are still trading well below their all-time highs. These stocks might not be worth backing up the truck for yet, but they might be worth nibbling on before the economy warms up again.
If you have at least $200 to spare, you should consider investing in these three underappreciated fintech stocks today: SoFi Technologies (SOFI 1.23%), Upstart (UPST -2.39%), and PayPal (PYPL 3.25%).
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1. SoFi Technologies
SoFi, which is short for Social Finance, operates a one-stop digital shop for a broad range of financial services. It offers a wide range of personal loans, credit cards, insurance services, estate planning tools, and stock investment services. It also launched a digital-only direct bank after it obtained a U.S. bank charter in 2022.
SoFi’s number of members surged from 2.52 million at the end of 2020 to 9.37 million in the third quarter of 2024. Its digital-only direct banking model enabled it to expand much faster than its traditional brick-and-mortar competitors. Its payment processing subsidiary, Galileo, which it acquired in 2020, hosts 160 million accounts on its own.
From 2020 to 2023, SoFi’s adjusted revenue grew at a compound annual growth rate (CAGR) of 49% from $621 million to $2.07 billion. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) turned positive in 2021, and that figure blossomed at a CAGR of 279% to $432 million in 2023. From 2023 to 2026, analysts expect its revenue and adjusted EBITDA to rise at a CAGR of 19% and 46%, respectively.
With an enterprise value of $14.5 billion, SoFi trades at just 15 times its adjusted EBITDA for 2025. Its valuations were previously squeezed by the temporary freeze on student loans and rising interest rates, but both of those headwinds are dissipating. Therefore, it could be the perfect time to nibble on SoFi’s unloved stock.
2. Upstart
Upstart is an online lending marketplace that uses its artificial intelligence (AI) algorithms to approve loans for banks, credit unions, and auto dealerships. Instead of using credit scores, income, and other traditional data points, Upstart crunches non-traditional data like a person’s past education, test scores, jobs, and other information to approve more loans.
Upstart’s originated loans surged 40% in 2020 and 338% in 2021 in a low interest rate environment. But as interest rates rose, its loan originations dropped 5% in 2022 and sank 59% in 2023.
Its conversion rate (the ratio of its total inquiries resulting in approved loans) declined from 15% in 2020 to 10% in 2023. Its adjusted EBITDA turned negative in 2023 and stayed in the red throughout the first nine months of 2024.
But as interest rates decline, Upstart’s business will perk up again. In the first nine months of 2024, its originated loans grew 12% year over year as its conversion rate rose to 15%. For 2024, analysts expect its revenue will have risen 17%. Over the following two years, they expect its revenue to grow at a CAGR of 28% as its adjusted EBITDA turns positive again. With an enterprise value of $6.1 billion, Upstart stock still looks dirt cheap at 7 times its projected sales for 2025. If interest rates keep falling and the macro environment warms up again, its stock could command a much higher valuation.
3. PayPal
PayPal operates one of the world’s largest digital payment platforms. It also owns the peer-to-peer payment app Venmo and the backend software provider Braintree. It served 432 million active accounts in its latest quarter.
PayPal faced three major challenges over the past few years. First, eBay replaced PayPal with its smaller competitor Adyen as its e-commerce marketplace’s preferred payment platform. Second, it struggled to gain new accounts as more competitors carved up the digital payments market. Lastly, it struggled as inflation throttled consumer spending.
But in the first nine months of 2024, PayPal’s active accounts grew 1% year over year — bouncing back from its 2% decline in 2023 — as its total payment volume (TPV) grew 11%. That recovery was driven by the stabilizing macro environment, new services for its namesake app, and the growth of Venmo and Braintree. To boost its operating margins and earnings per share (EPS), PayPal consistently cut costs and bought back more shares.
From 2023 to 2026, analysts expect PayPal’s revenue and EPS to grow at a steady CAGR of 6% and 11%, respectively. It trades at just 19 times its estimated earnings for 2025, and it could climb much higher as its near-term headwinds wane.
Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Adyen, PayPal, Upstart, and eBay. The Motley Fool recommends the following options: long January 2027 $42.50 calls on PayPal and short March 2025 $85 calls on PayPal. The Motley Fool has a disclosure policy.
