Wells Fargo Sees a $1.5 Trillion Opportunity for Fintech Companies; These 2 Stocks Are Set to Benefit

The digital revolution has changed the world in just the last decade and a half, spawning new technologies, new ways of using technologies, and bringing old businesses into the 21st century. Nowhere is this more obvious than in the financial sector. Banking and financial services have benefited enormously from bringing tech into the mix – and their gains have given us a new word to describe it, fintech.

5-star analyst Jeff Cantwell, of Wells Fargo, lays out the upside case for fintech in no uncertain terms: “We see a $1.5T annual revenue opportunity for Fintech companies globally, and expect 6% annual growth over the ensuing decade... Now is a highly opportune time for investors to take a fresh look at Fintech given current valuations. We expect that these companies' fundamentals will strengthen in '22/'23 and that the group's current discount to the broader market will not hold.”

Against this backdrop, Cantwell has pinpointed 2 fintech stocks which he believes are set to push ahead over the coming months. And he's not alone in his bullish outlook. According to TipRanks database, both tickers carry a Strong Buy consensus rating from the rest of the Street. Let’s take a closer look.

Paymentus Holdings (PAY)

First up is Paymentus, a bill payment fintech firm offering cloud-based solutions as an omni-channel integrated payment platform. The company’s product line delivers the latest in payment management tech to more than 1,700 billers and financial institutions. One figure will show the magnitude of Paymentus’ market: in 2021, the company cleared more than 280 million payment transactions.

Paymentus went public in May of last year, putting 10 million shares on the market at a price of $21 each and raising more than $210 million in gross proceeds. The stock has tumbled ~42% thus far in 2022, and now trades slightly below its IPO price.

That loss came even as the company reported sound financial results. Paymentus released its first set of results for 2Q21, and showed $93.5 million in revenue. That increased to $101.6 million in 3Q21, and in the most recent quarter, 4Q21, it increased again to $108.1 million. The 4Q number was up 31% year-over-year. In its core business, processing payment transactions, Paymentus showed clear growth in Q4. The company handled 83.3 million transactions, up ~54% year-over-year.

For the full year 2021, Paymentus brought in $395.5 million in revenue, up ~31% from 2020. The company reported having $168.4 million in cash on hand at the end of 2021.

Cantwell sees a clear path forward for this company, for two reasons – first is Paymentus’ quality, and second is the known waste in its niche. The analyst writes: “We view Paymentus as a 'next-gen' disruptor, and we expect it will gain further share over the next two years as the company continues to execute in a space (bill payments) that is otherwise characterized by inefficiency. The natural consequence of these share gains by Paymentus will be strong expansion in the firm’s revenue and adjusted gross profit... . Longer term, we also believe Paymentus will expand adjusted EBITDA margins and drive improved profitability as it further consolidates its leading position in bill payments."

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