3 Overvalued Fintech Stocks to Avoid in December

The COVID-19 pandemic ushered in several changes in the way we live, work, and transact finance. The pandemic accelerated consumers’ digital adoption, which could otherwise have taken years to develop. Most fintech companies rose to the challenge amid the pandemic by delivering secure, seamless, and fully digital financial services to consumers at a negligible cost.

Although the Fintech space has benefited dramatically since the onset of the pandemic, it faces intense competition from traditional banks. According to BankDirector’s 2021 Technology Survey, banks have increased their technology spending by a median of 10%. Also, investor pessimism concerning the fintech space is evident in the Global X FinTech ETF’s (FINX) 16.5% loss over the past month.

Given this backdrop, we think it could be wise to avoid fintech stocks Affirm Holdings, Inc. (AFRM), SoFi Technologies, Inc. (SOFI), and Futu Holdings Limited (FUTU). They look overvalued at the current price level.

Affirm Holdings, Inc. (AFRM)

San Francisco-based AFRM provides digital and mobile commerce platforms by enabling a technology-driven payments network through partnerships with banks. A consumer can use the company’s platform by selecting their repayment option while the loans are funded and issued by its bank partner. Its platform has three elements: a point-of-sale payment solution, merchant commerce solutions, and consumer-focused applications.

AFRM’s adjusted operating loss for its fiscal first quarter, ended September 30, 2021, increased 470.8% year-over-year to $45.10 million. The company’s net loss increased 7,761.5% year-over-year to $306.60 million. Also, its operating expenses increased 110% year-over-year to $435.45 million.

In terms of forward EV/S and P/S, AFRM’s respective 25.94x and 25.33x are higher than the 4.13x and 4.12x industry averages. Furthermore, its 15.60x forward P/B is 169.5% higher than the 5.79x industry average. Analysts expect its EPS to remain negative in fiscal 2022 and 2023. The stock has lost 26.2% in price over the past month to close yesterday’s trading session at $109.96.

AFRM’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

It has an F grade for Value and a D grade for Stability, Sentiment, and Quality. It is ranked #70 out of 75 stocks in the D-rated Technology – Services industry. Click here to see the other ratings of AFRM for Growth and Momentum.

SoFi Technologies, Inc. (SOFI)

San Francisco-based digital financial services company SOFI operates through lending, financial services, and technology platform segments. Its lending segment offers student loans, personal and home loans. In contrast, the financial services segment provides cash management and investment services through SoFi Money, SoFi Invest, SoFi Credit Card, and SoFi Relay. Its technology platform segment offers the benefits of Galileo and Apex.

For the fiscal third quarter, ended September 30, 2021, SOFI’s adjusted EBITDA decreased 69.3% year-over-year to $10.25 million. The company’s student loan lending came in at $967.93 million, down 6.4% year-over-year. And its sales and marketing expenses increased 48.4% year-over-year to $114.98 million.

In terms of forward P/S and P/B, SOFI’s respective 12.07x and 2.35x are higher than the  3.36x and 1.23x industry averages. The company’s EPS is expected to remain negative this year and next year. Over the past six months, the stock has declined 34.9% in price to close yesterday’s trading session at $14.58.

SOFI’s POWR Ratings reflect these bleak prospects. It has an overall D rating, which equates to a Sell. Also, it has an F grade for Value and Stability and a D grade for Sentiment and Quality. It is ranked #124 out of 128 stocks in the D-rated Financial Services (Enterprise) industry. To see the other ratings of SOFI for Growth and Momentum, click here.

Futu Holdings Limited (FUTU)

Headquartered in Hong Kong, FUTU is an investment holding company that offers digitized brokerage platforms. The company provides investment services through its digital brokerage platform, Futu Nigunim. Its service offerings include trade execution and margin financings, which allow its clients to trade securities across the markets for stocks, warrants, options, and exchange-traded funds (ETFs).

FUTU’s operating expenses for the fiscal third quarter, ended September 30, 2021, increased 136.6% year-over-year to HK$763.75 million ($97.91 million). The company’s research and development expenses increased 49.5% year-over-year to HK$223.90 million ($28.70 million). And for the nine months ended September 30, 2021, its liabilities increased 32.3% year-over-year to HK$83.40 billion ($10.69 billion).

In terms of forward non-GAAP P/E, FUTU’s 17.70x is 57.2% higher than the 11.26x industry average. Also, its forward P/S and P/B of 7.45x and 2.27x, respectively, are higher than the 3.36x and 1.23x industry averages. Over the past nine months, the stock has declined  73.8% in price to close yesterday’s trading session at $41.70.

FUTU’s weak prospects are reflected in its POWR Ratings. It has an overall D rating, which equates to a Sell in our rating system. In addition, it has an F grade for Stability and Sentiment and a D grade for Value. Within the F-rated Financial Marketplaces industry, it is ranked #11 of 12 stocks. Click here to see the other ratings of FUTU for Growth, Momentum, and Quality.

AFRM shares fell $2.46 (-2.24%) in premarket trading Tuesday. Year-to-date, AFRM has gained 13.08%, versus a 26.01% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

More...