This February hasn’t been a great month for the growth stocks in your portfolio. Now that some of the best fintech stocks on the market have posted significant losses, it could be a good time to average down on your favorites.
Shares of these three stocks shot up at the beginning of the pandemic but lately, they’ve been under a lot of pressure. Let’s look under the hood to see if they have what it takes to make a comeback.
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Block
Block (NYSE:SQ) shares have fallen about 65% from a peak they reached last August. Now the stock is trading for prices not seen since the first half of 2020.
Before changing its name from Square, this company popularized little square-shaped accessories that allow anyone with a smartphone to accept a credit card. Last December, the company changed its name to Block to highlight a big bet on blockchain-based transactions.
Conducting transactions with Bitcoin can be slow and expensive so Block bought heaps of its own Bitcoins to facilitate future transactions. Of course, the price of Bitcoin has fallen by about 35% since Block changed its name leading investors to wonder if the company made a huge mistake.
Cash App is the peer-to-peer payment service that Block launched in 2013 to compete with Venmo. Adding the ability to trade stocks and cryptocurrency made Cash App the company’s biggest growth driver in 2021 and investors can expect it to continue climbing. In the last half of 2021, Block opened up its Cash App service to U.S. teenagers, a demographic that represents around 20 million Americans.
Block shares have fallen to an unusually low price that works out to just 3.1 times trailing twelve-month sales. That’s incredibly cheap considering the company’s pace of growth. From this level, this stock can deliver market-beating gains even if Bitcoin-backed payments never get off the ground.
Shopify
Shopify (NYSE:SHOP) stock has fallen by about a third over the past month. Now it’s more than 60% below the peak it reached last November.
Shopify is where you go when you have a product you’d like to market directly to consumers instead of through Amazon. An increasing number of small to medium-sized businesses hire Shopify to accept payments through their own website, or social media accounts. Merchants racked up sales totaling $175.4 billion on Shopify’s platform last year, which was 47% more than in 2020.
Shares of Shopify fell hard recently because the company warned the market it would significantly increase investments into fulfillment service infrastructure. That means the profit growth investors were expecting over the next couple of years will be somewhat muted.
Heavy spending on infrastructure will sting in the short term, but patient shareholders could come out way ahead over the long run. As we’ve already seen from Amazon, merchants and consumers will beat a path to your door if you can provide them with better fulfillment services.
A network of self-operated warehouses near major cities is going to pinch Shopify’s bottom line over the next few years, but the company can afford it. Shopify’s already responsible for more than 10% of all e-commerce in the U.S. which is more than Best Buy, Target, and Home Depot combined.
Toast
Toast (NYSE:TOST) made its stock market debut last September and peaked in November. Now that the stock has lost more than two-thirds of its value, investors are wondering if there’s a bargain here.
Toast offers a full suite of financial services specific to restaurants that are increasingly eager to digitize as much of their operation as possible. Last year, total revenue more than doubled compared to 2020 and reached $1.7 billion.
Unlike Shopify and Block, Toast isn’t making ends meet yet. Fear the company might not be able to report a profit in the foreseeable future is dragging it down. This year, the company expects to lose between $200 million and $250 million before interest, taxes, depreciation, and amortization (EBITDA).
Toast is allowing new clients to get started without a subscription to quickly gain market share in this rapidly changing space. That’s one way to grow the business, but it might not be sustainable. It might be best to keep this stock on a watchlist until it starts moving toward profitability.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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