3 Fintech growth stocks under the radar for 2022
FinTech has been in tears for the past few years. With digital payments, new lending services, software that helps businesses automate accounting and financial tasks, and the emergence of cryptocurrency, a myriad of technological developments are reshaping the landscape of the financial industry. A large number of new companies have sprung up to capitalize on the movement, many of them capturing the attention of investors.
However, not all fintech actions are in the spotlight. Three often overlooked companies that deserve a closer look to launch 2022 are Silvergate Capital (NYSE: SI), nCino (NASDAQ: NCNO), and FactSet Search Systems (NYSE: FDS).
1. Silvergate Capital: a leading platform for institutional cryptocurrency trading
Silvergate Capital is a bank and therefore many investors might be hesitant that it is currently trading for 21 times sales and 50 times profit on a 12 month basis. However, while it is indeed a bank that derives most of its money from interest income, it also plays a key role in the development of the crypto industry.
The company launched the Silvergate Exchange Network (SEN) several years ago, allowing institutional crypto investors and crypto traders to send money 24/7, a crucial function because cryptocurrency markets never close. A number of the most prominent crypto trading platforms are among SEN’s client base, including Global Coinbase (NASDAQ: COIN), and Silvergate continues to report an increasing number of users and repositories. In the third quarter of 2021, digital currency customers were up 41% year on year to 1,305, and average crypto customer deposits increased 13% to $ 11.2 billion.
This large influx of deposits (which bears no interest charges for Silvergate) coupled with rising interest rates over the coming year (which would mean more interest income for Silvergate) foreshadows another big jump in Silvergate’s profits in 2022.
It also has other initiatives in the works. If and when Meta-platforms (NASDAQ: FB) finally launches its Diem stablecoin project for Facebook’s digital payment activity, Silvergate will be the bank that will manage its issue. And Silvergate announced a new investment fund for early stage fintech startups.
This all adds up to some exciting banking action, albeit its volatility is above average given its close connection to the crypto industry of the Wild West. Nonetheless, for those interested in an institution that bets big on the future of silver itself, Silvergate Capital deserves serious consideration.
2.nCino: bringing banking software into the 21st century
nCino was a hot stock after its IPO in the summer of 2020. The company built an operating system for banks using the Salesforce.com (NYSE: CRM) cloud platform, and Salesforce remains a partner and investor in this small software group. But since then it has been difficult for the shareholders of the company. The stock has lost more than 40% since its public market debut.
Now it looks like maybe it’s time to start snacking. As the stock declined, nCino’s business rose. Management expects revenue in its current fiscal year 2022 (the 12-month period ending January 31, 2022) to be $ 268 million, an increase of 31% from a year over year.
Not all investors will be comfortable with this action. nCino invests heavily in development and marketing, and is therefore operating at a loss for the moment. Free cash flow has been negative $ 14 million over the past 12 months. This is by design as nCino prioritizes growth at this time as banks, lenders and other financial institutions update their operations amid rapid changes in consumer behavior. Expectations have changed and the younger generations are demanding digital service first and foremost from the financial companies with which they do business. nCino is helping to manage this transition to the digital age.
At just under 20 times 12-month sales, nCino is trading higher even after the stock has fallen for the past year and a half. But if the business can keep up its double-digit pace of expansion ($ 381 million in cash and no debt is certainly helping its chances), it might not be that expensive. If you are buying, remember to start very small and add a position over time if nCino proves their growth story is the real deal in the long run.
3. FactSet Research: expanding its role in global financial markets
Let’s step up a gear and talk about FactSet Research, a far more boring stock compared to the rapid growth that Silvergate and nCino offer. FactSet’s revenue growth rate has averaged a single-digit percentage over the past few years, although free cash flow has grown by almost 50% since the start of 2019. But sometimes slow and steady can help us, the investors, win the race.
FactSet provides financial institutions with data, market research and operational management software solutions. And it continues to expand its reach into the ecosystem of global financial markets. To expand its range of services, it recently announced the acquisition of CUSIP Global Services (the system that identifies and manages financial instruments like stocks and bonds) from Global S&P (NYSE: SPGI) for just over $ 1.9 billion in cash. CUSIP is expected to be highly complementary to FactSet’s existing data services and will immediately have a positive impact on the overall bottom line of the business.
As financial markets grow steadily, FactSet also expects steady growth and even faster increases in profitability. Management expects revenue to increase 8% year-over-year for fiscal 2022 (which excludes any benefit from the ongoing CUSIP acquisition), while maintaining its profit margin of operating adjusted to around 33%.
With just under 36 times free cash flow over the past 12 months, stocks aren’t exactly cheap. But investors are entitled to a modest dividend and share buybacks along the way, all from a company that has 41 straight years of sales growth and 22 years of rising dividends. It might not be a top name in fintech, but FactSet is worth checking out for 2022.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.