The fintech industry has witnessed unprecedented growth since the onset of the COVID-19 pandemic in early 2020 as people began increasingly adopting online payments solutions in response to social distancing mandates. Fintech companies worldwide have raised $94.70 billion in the first three quarters of 2021 (ended September 2021), reflecting bullish growth prospects. In fact, the funds raised within the first three quarters of this year are equivalent to the total funding received by global fintech companies over the past two years combined.
With most governments working toward launching digital currencies in the near term, the fintech industry is expected to witness explosive growth over the long term. Both Fiserv, Inc. (FISV) in Brookfield, Wisc., and Global Payments Inc. (GPN) in Atlanta, Ga., are leading players in the fintech industry and we think are well-positioned to benefit from the industry tailwinds.
But the shares of both FISV and GPN have declined in price over the past year. While shares of GPN lost 34.9% over the past year, FISV fell 9.64%. And in terms of their past month’s performance, FISV is the clear winner with 3.9% gains compared to GPN’s 4.1% decline.
So, which stock is a better buy now? Let’s find out.
On November 22, FISV acquired BentoBox. Regarding this, FISV President and CEO Frank Bisignano said, “Closing this transaction further expands our Clover® dining solutions and industry-leading commerce and business management capabilities, enabling nearly 200,000 restaurants of all sizes to deliver unique and differentiating diner experiences, from quick and casual to full service.”
FISV launched its digital-first branded credit card, Credit Choice, for consumers and small business owners in October. Credit Choice is expected to be a big hit among the smaller financial firms and consumers due to its user-friendly operations and lower charges.
In September, GPN partnered with leading U.K.-based financial services group Virgin Money to launch a new connected payment offering. This payment solution is expected to completely change the digital commerce industry over time by connecting both sides of the payments ecosystem.
Also in October, GPN agreed to acquire leading automation and B2B payments solutions provider MineralTree. This should allow GPN to expand its target addressable markets, thereby providing robust long-term growth opportunities.
Recent Financial Results
FISV’s revenues increased 10% year-over-year to $4.16 billion in its fiscal third quarter, ended September 30, 2021. Its adjusted operating margin improved 130 basis points from the prior-year quarter to 34.2%. And its EPS came in at $0.64, up 64% from the same period last year.
GPS’ adjusted net revenues increased 15% year-over-year to $2 billion in its fiscal third quarter, ended September 30, 2021. And while its adjusted operating margin stood at 42.8%, up 170 basis points from the year-ago value, its adjusted EPS improved 28% from the prior-year quarter to $2.18.
Past and Expected Financial Performance
FISV’s revenues have increased at a 39.8% CAGR over the past three years. Its EBITDA and total assets increased at CAGRs of 44.3% and 91.7%, respectively, over this period. In comparison, GPN’s revenues have risen at a 32.6% CAGR over the past three years. GPN’s EBITDA has risen at a 38.8% rate per annum over the past three years, while its total assets increased at a 49% CAGR over this period.
Analysts expect FISV’s revenues to rise 11.5% in the current quarter, 10.8% in the current year, and 7.6% next year. The consensus EPS estimates indicate a 20% year-over-year improvement in the current quarter, a 26.2% rise in the current year, and a 16.5% increase in 2022.
In comparison, GPN’s revenue is expected to increase 13.2% in the current quarter, 14.7% in the current year, and 9.7% next year. The Street expects GPN’s EPS to rise 18.9% in the current quarter, 27.5% in the current year, and 18% in 2022.
FISV’s EPS is expected to rise at a rate of 19% per annum over the next five years, while GPN’s EPS is expected to grow at a 20.4% CAGR over this period.
FISV’s trailing-12-month revenue is 1.91 times GPN’s. However, FISV’s 51.5% trailing-12-month gross profit margin is lower than GPN’s 55.33%. Also, GPN’s 11.38% and 34.84% respective railing-12-month net income margin and levered free cash flow margin compare with FISV’s 8.23% and 21.16%.
However, FISV’s ROE and ROTC of 4.17% and 2.88%, respectively, are higher than GPN’s 3.52% and 2.7%.
In terms of forward non-GAAP P/E, FISV is currently trading at 18.64x, which is 19.5% higher than GPN, which is currently trading at 15.60x. FISV’s 1.12 non-GAAP forward PEG ratio is 41.8% higher than GPS’ 0.79.
Also, FISV’s 14.02 and 17.63 respective trailing-12-month EV/EBITDA and Price/Cash Flow multiples are higher than GPN’s 12.97 and 13.21.
Both GPN and FISV have an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
Both FISV and GPN have a C grade for Value and Quality. In terms of forward Price/Sales, GPN is currently trading at 4.78x, which is 16.7% higher than the 4.10x industry average, which is in sync with the Value grade. In comparison, FISV is currently trading at 4.25 times its sales, which is 3.8% higher than the 4.1 industry average, justifying the Value grade.
In addition, FISV and GPN’s trailing-12-month ROE of 4.11% and 3.49%, respectively, are slightly lower than the 8.37% industry average, justifying the Quality grades.
FISV and GPN are two of the most famous names in the fintech industry, with optimistic growth prospects. However, given the surging market volatility, overvalued stocks are at high risk of a sharp pullback. Thus, we think investors should wait until the markets stabilize before investing in either of the stocks.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Consumer Financial Services industry, and here for those in the Financial Services (Enterprise) industry.
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FISV shares were trading at $102.96 per share on Friday afternoon, down $0.57 (-0.55%). Year-to-date, FISV has declined -9.57%, versus a 26.74% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...
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