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of S&P500 is hovering near all-time highs heading into March, but that doesn’t mean all stocks are expensive. There are some great opportunities, especially in the financial technology, or fintech, industry for long-term investors with an appetite for risk. He highlights two companies in particular that could be incredible buys as winter draws to a close.
A true disruptor with powerful results
lemonade (LMND 4.19%) is an insurance company that aims to disrupt the traditional model by using technology to alleviate consumer pain points. For example, insurance claims are often processed in seconds rather than days, and obtaining (and accepting) insurance quotes is a seamless process.
In the fourth quarter, Lemonade reported surprisingly strong results. Sales, premiums in force, and earnings before interest, taxes, depreciation, and amortization (EBITDA) exceeded the upper limit of the guidance range. The latter showed that losses were shrinking fairly quickly.
Management said it expects to be cash flow positive in 2025 and expect to achieve adjusted EBITDA margins in 2026. With nearly $1 billion in cash and investments, the company has plenty of runway to get there.
Not only were all of these metrics impressive, but the company’s loss rate was 77%. big This is ahead of the 89% figure seen in Q4 2022 and slightly above the long-term target of 75%. (To be fair, the fourth quarter was a seasonally strong year for insurance profitability.)
Despite the business’ generally impressive performance, Lemonade’s stock price fell more than 20% after the report. Not only was management’s 2024 revenue outlook slightly weaker than investors had expected, but the company is returning to growth mode in 2024, and increased growth expenses could weigh on profitability. said.
Still, the company’s numbers are all trending in the right direction. If management can maintain business growth and meet profit targets, it could be a big win for patient investors.
Deep value fintech with many possibilities
In many ways, PayPal‘s (PYPL 0.33%) Recent results have been quite positive. Although its active user base was down 2% year over year in the fourth quarter, the company increased its total payments by 15% thanks to its focus on acquiring its most loyal customers.
The company is very It is profitable and generates approximately $5 billion in free cash flow annually. This comes along with his more than $17 billion in cash on the balance sheet.
PayPal’s stock price has fallen in recent years due to slowing user growth and uncertainty about the company’s future growth strategy. As a result, PayPal has fallen about 80% from its 2021 high.
New CEO Alex Criss, who took over a few months ago, has already rolled out several growth initiatives that leverage artificial intelligence (AI). But for now, it remains to be seen whether he can return the company to significant revenue and profit growth.
PayPal is expected to generate earnings of $5.10 per share in 2024, trading the stock for less than 12 times forward earnings. Long-term investors who add to the giant company’s stake in the middle of a strategic shift could reap big rewards.
buy long term
There’s no telling what Lemonade and PayPal’s stocks will do in the coming weeks or months. I hold the stocks in my portfolio because I believe in the long-term growth potential of both businesses, and I think the value of both stocks will be significantly higher in 5-10 years than they are today. Because it is. Expect a bit of a roller coaster ride along the way, but patient and risk-tolerant investors may ultimately be thrilled with the additions to these stocks at current levels.
Matt Frankel has positions at Lemonade and PayPal. The Motley Fool has a position in and recommends Lemonade and PayPal. The Motley Fool recommends this option: His March 2024 $67.50 Short Calls on PayPal. The Motley Fool has a disclosure policy.
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