1 Fintech share Wall Street believes could rise
Fintech stocks have not been a high-performing group this year as investors flee to safe stocks. As a category, fintech is high-growth and technology-based, two labels that mostly describe a riskier class of stocks.
But just because many fintechs are out of favor right now doesn’t mean they don’t have a bright future. Many show soaring growth even in bearish market conditions, and it is only a matter of time before investors recognize the opportunities they offer.
One stock that has been volatile lately is the digital credit card platform Market (MQ 1.37%). The price has only fallen since its debut on the stock market last year to $27. It has dropped about 75% since then. At this price, the average Wall Street analyst target is 60% higher, with a high estimate of 114%. What should investors think?
A simple and useful product
Marqeta sells a software-as-a-service product that allows business customers to fully customize a credit card to fit their needs. For example, Uber uses the platform to manage financial transactions with drivers, and Block uses the technology to power its Square card.
Although many companies are suffering along with the world economy, they still need to move forward with their businesses. It gives business-to-business companies an edge in this market, and explains why Marqeta is posting strong results in this environment.
In the second quarter of 2022, revenue increased 53% year-over-year to $187 million, and gross profit increased 66% to $78 million. The net loss was reduced from 68 million dollars last year to 45 million dollars this year. The company has also added 40 new credit APIs to the platform to increase capabilities and make it more user-friendly. APIs, or application programming interfaces, connect users with technology and are the foundation of the Marqeta platform.
Management estimates that turnover will increase by approx. 37% year on year in the third quarter and that the gross margin will increase somewhat from 42% in the second quarter.
Changes at the helm
The big news in the second quarter report was that founder and CEO Jason Gardner stepped down from his executive role. Wall Street never likes it when a founder leaves a company, and that news was the main reason behind the stock’s drop after the report.
It might not be as bad as it sounds. Gardner explained that he is leaving the position because he is the entrepreneur behind the product, but as a public company, Marqeta is ready for its next phase of growth, and requires a leader with a different skill set. He will remain as chairman and remain involved in product development and corporate culture.
It’s reasonable for investors to lose confidence when there’s a new CEO, especially after a young, recently public growth company that’s still moving toward stability. It’s different than when a big blue chip announces a CEO change. Marqeta’s share price is likely to remain subdued until a new CEO is announced and a new leader demonstrates the ability to steer the company towards sustainable growth.
Why Marqeta stock could rise
The reduced share price puts the Marqeta share back in the agreement zone. There is a risk with a change of CEO, in addition to the company still posting net losses and expanding its operations. But the growth opportunity looks very compelling.
Marqeta stock is also at its cheapest since it went public, according to the price-to-sales ratio.
MQ PS ratio. Data from YCharts.
Risk-tolerant investors may want to take a position while the stock is cheap, but don’t expect high gains in the short term.
Jennifer Saibil has no position in any of the aforementioned shares. The Motley Fool has positions in and recommends Block, Inc. The Motley Fool recommends Marqeta, Inc. and Uber Technologies. The Motley Fool has a disclosure policy.
