Some fans of neo-banking firm SoFi Technologies (NASDAQ:SOFI) might evangelize for the company, but is it the best fintech business to invest in? When we compare SoFi to rival fintech company PayPal (NASDAQ:PYPL), the results might surprise you. In the end, the data points will undoubtedly convince you to choose PYPL stock instead of SOFI stock.
Sure, SoFi is known to be a financial-market disruptor. That’s perfectly fine. Also, you might be impressed that SoFi Technologies managed to secure a banking charter.
Getting a banking charter put SoFi in the headlines, but at the end of the day, the bottom line is the bottom line. If PayPal delivers profits while SoFi falls short, then picking the better fintech stock should be a no-brainer.
What’s Happening With SOFI Stock and PYPL Stock?
Investors of SoFi Technologies and PayPal are in the red this year so far. In particular, SOFI stock has declined from roughly $15 to $7, while PYPL stock slumped from about $195 to $100. In other words, both stocks have practically been cut in half.
Yet, a low price doesn’t always mean there’s a good value. PayPal has a trailing-12-month price-to-earnings (P/E) ratio of 53.5. It’s not a rock-bottom valuation, but at least PayPal has a P/E ratio. SoFi Technologies doesn’t have one, which makes it more difficult to properly value the company.
Indeed, SoFi’s $95.8 million net earnings loss in 2022’s second quarter should be disconcerting to value-minded investors. Also problematic is SoFi’s Q2 2022 student loan volume, which the company admits “was down to 25% of the average pre-pandemic volume.” This suggests that SoFi Technologies relies too much on its personal-loan business while the company’s student-loan segment is faltering.
On top of all that, Softbank (OTCMKTS:SFTBY) announced its plans to sell some or all of its 9% stake in SoFi Technologies. That’s certainly not a positive sign.
PayPal Offers a Superior Financial Profile
While Softbank is divesting its SoFi shares, Elliott Investment Management has been busy building up a stake in PayPal. So far, we know that Elliott’s stake is worth $2 billion — a confident position, to say the least.
Ultimately, however, it’s the bottom-line results that should pique the interest of value-minded investors. SoFi Technologies fell short, but will PayPal make the grade?
The answer is yes, as PayPal reported non-GAAP-measured earnings of 93 cents per share in 2022’s second quarter. This result beat the analyst consensus estimate by 9.4%.
The future also looks to be profitable for PayPal, as the company guided for third-quarter 2022 non-GAAP earnings in the range of 94 cents to 96 cents per share.
What You Can Do Now
Investing in forward-looking fintech firms is a good idea, as long as you pick the right companies. The idea is to be selective and always check the bottom-line stats before jumping into the trade.
It’s fine that SoFi Technologies has a banking charter, but the company seems to be having problems with its student-loan business. Furthermore, there’s evidence that PayPal turned a profit while SoFi didn’t. Therefore, finicky fintech investors should look to PYPL stock instead of SOFI stock for powerful upside potential.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.