We recently compiled a list of the 13 Most Promising Fintech Stocks to Buy. In this article, we are going to take a look at where Block, Inc. (NYSE:SQ) stands against the other promising fintech stocks.
Global Fintech at a Glance
According to a report by Expert Market Research, the global fintech market was valued at $226.71 billion in 2023 and is expected to grow to $917.17 billion by 2032, at a compound annual growth rate of 16.8% between 2024 and 2032. CNBC has unveiled a comprehensive distribution of the fintech industry by category. Payments make up 20%, alternative finance 16%, neo banking 14%, wealth technology 12%, business process solutions 10%, financial planning 8%, banking solutions 10%, and digital assets 6%, of the industry.
The fintech market has witnessed a surge in growth over the last decade and continues to show resilience and strength. In research conducted by the World Economic Forum, 51% of fintech companies cited strong consumer demand for their services to be the main driver of growth. This trend remained consistent across all regions. Digital innovation by such fintech companies operating in developing economies has simply helped people escape the traditional banking system.
While the booming fintech sector is meant to offer the best of both worlds which means innovative banking and cutting-edge technology alongside safety, customers have recently encountered problems with safety and security. An estimated 100,000 Americans who were customers of fintech apps were locked out of their banking accounts in early May. This was after the bank-fintech middleman Synapse Financial Technologies filed for bankruptcy in April which led to the freezing of accounts for customers of its partner banks. Although the fintech apps in this scenario were relatively smaller as compared to dominant players, Hugh Son questioned the safety of the fintech model where fintechs partner with banks which is also followed by Chime and PayPal, in a talk with CNBC.
Regarding this, there has been a positive development for those using fintech apps whose funds can get stuck in case of a mishap. Recently, the U.S. banking regulator, Federal Deposit Insurance Corp, proposed strengthened rules for banks working with fintech companies. Under these rules, such banks would have to identify the beneficial owners of each account and its balance. Hence, the proposal would ensure that third parties like Synapse would be allowed to maintain the records as long as the bank retains unrestricted access to that data even in the event of a middleman’s bankruptcy.
Our Methodology:
In order to compile a list of the 13 most promising fintech stocks to buy, we first sifted through ETFs and online rankings to gather a preliminary list of 30 such stocks. We then selected the top 13 stocks that had the highest upside potential. The 13 most promising fintech stocks to buy are arranged in ascending order of their average upside potential, as of September 30. We have also supplemented our ranking with the number of hedge funds held by every stock, as of Q2 2024.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
People using the Cash App paying for goods and services, highlighting the impact the of the company’s payment tools.
Block, Inc. (NYSE:SQ)
Average Upside Potential: 34.39%
Number of Hedge Funds: 59
Block, Inc. (NYSE:SQ) helps expand access to the economy through Square, Cash App, Spiral, TIDAL, and TBD. Square offers an integrated ecosystem of commerce solutions, business software, and banking services for sellers to grow their business while Cash App allows sending, spending, or investing money in stocks or crypto. Spiral advances the use of Bitcoin by building and funding free, open-source projects whereas TIDAL is a platform for musicians and their fans. TBD eases access to Bitcoin and other blockchain technologies.
The key businesses of Block, Inc. (NYSE:SQ) have proven to be robust. In the overall Square gross profit, the gross profit from international markets continues to grow which shows an expanding business. The CashApp ecosystem has successfully driven growth across diverse services and revenue streams while total inflows have increased 22% year-over-year. Additionally, the market opportunity for the firm remains vast. While Square represents a nearly $130 billion gross profit opportunity, Cash App represents a nearly $75 billion gross profit opportunity in the US.
The firm recorded a strong second quarter with its gross profit increasing 20% since the prior-year period. Square gross profit increased 15% year-over-year while Cash App’s gross profit climbed 23% year-over-year. Adjusted operating income was up 16 folds year-over-year. For the 12 months ending in June 2024, Block had $1.43 billion in adjusted free cash flow, almost doubling from the preceding year.
With growth at scale and successful key businesses alongside strong financial results, Block, Inc. (NYSE:SQ) has a lot of future potential. As of Q2, the stock is held by 59 hedge funds. The average upside potential for the stock stands at 34.39%.
Overall SQ ranks 2nd on our list of the most promising fintech stocks to buy. While we acknowledge the potential of SQ as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than SQ but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
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