The COVID-19 pandemic made fintech companies highly popular as they made credit, payments, lending, and many more financial activities available readily on tap. However, this year has been challenging for the industry, with the Fed increasing interest rates aggressively to tame the surging inflation.

Fintech stocks have faced a similar fate to technology stocks as investors shifted their attention from these high-growth names. Investors’ declining interest in fintech stocks is evident from the ARK Fintech Innovation ETF’s (ARKF) 61.5% decline year-to-date.

Since the economy is expected to witness a recession next year, fundamentally weak fintech stocks Block, Inc. (SQ), SoFi Technologies, Inc. (SOFI), and Paymentus Holdings, Inc. (PAY) could see further downside. So, investors should avoid these stocks or sell them short.

Block, Inc. (SQ)

SQ and its subsidiaries create tools enabling sellers to accept card payments and provide reporting, analytics, and next-day settlement. It offers various hardware products, software products, and a developer platform.

SQ’s total net revenue declined 5.9% year-over-year to $4.40 billion for the second quarter ended June 30, 2022. Its adjusted net income widened 56.7% year-over-year to $110.74 million. The company’s adjusted EBITDA declined 47.9% year-over-year to $187.34 million. In addition, its adjusted EPS came in at $0.18, representing a 63.3% decline from the prior-year quarter.

SQ’s EPS for the quarter ended September 30, 2022, is expected to decline 38% year-over-year to $0.23. Over the past year, the stock has fallen 78.1% to close the last trading session at $54.64.

SQ’s POWR Ratings reflect bleak prospects. The stock has an overall rating of D, equating to Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

Within the F-rated Financial Services (Enterprise) industry, it is ranked #90 out of 106 stocks. The company has a D grade for Momentum, Stability, Sentiment, and Quality.

Click here to see the other POWR Ratings of SQ for Growth and Value.

SoFi Technologies, Inc. (SOFI)

SOFI provides digital financial services through three segments: Lending, Technology Platform, and Financial Services. The company provides lending and financial services and products, allowing its members to borrow, save, spend, invest, and protect their money. It also offers student loans, personal loans for debt consolidation and home improvement projects, and home loans.

SOFI’s total liabilities increased 130.7% to $10.33 billion for the third quarter ended September 30, 2022, compared to $4.48 billion for the fiscal year ended December 31, 2021. Its total interest expense increased 89.3% year-over-year to $40.19 million. The company’s net loss widened 147% year-over-year to $74.21 million. Additionally, its loss per share widened 80% year-over-year to $0.09.

SOFI’s EPS for the quarter ending December 31, 2022, is expected to remain negative. Over the past year, the stock has fallen 77.4% to close the last trading session at $5.12.

SOFI’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall F rating, which translates to a Strong Sell in our proprietary rating system. It is ranked #104 out of 106 stocks in the same industry. It has an F grade for Stability and Quality and a D for Growth, Value, and Momentum.

We have also given SOFI a grade for Sentiment. Get all SOFI ratings here.

Paymentus Holdings, Inc. (PAY)

PAY provides cloud-based bill payment technology and solutions. The company offers electronic bill presentment and payment (EBPP) services, enterprise customer communication, and self-service revenue management to billers. The company serves utility, financial services, insurance, government, telecommunication, and healthcare industries.

For the fiscal second quarter ended June 30, 2022, PAY’s total operating expenses increased 53.1% year-over-year to $38.05 million. Its net loss attributable to common stock widened 658.8% year-over-year to $2.45 million. Its net cash provided by operating activities declined 31.1% year-over-year to $3.84 million.

In addition, its adjusted EBITDA came in at $5.01 million, representing a 39.8% decline from the prior-year quarter.

Analysts expect PAY’s EPS for the quarter ending December 31, 2022, to decline 44.7% year-over-year to $0.01. Over the past year, the stock has fallen 60.7% to close the last trading session at $10.45.

PAY’s POWR Ratings reflect this grim outlook. The stock has an overall rating of D, translating to a Sell in our proprietary rating system. It is ranked #93 in the Financial Services (Enterprise) industry.

In addition, it has a D grade for Growth, Momentum, Stability, and Quality.

To see the other ratings of PAY for Value and Sentiment, click here.

SQ shares were trading at $54.18 per share on Thursday afternoon, down $0.46 (-0.84%). Year-to-date, SQ has declined -66.45%, versus a -20.56% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

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...

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