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Financial services is arguably the most important industry in our economy, as the movement of money, as well as saving and lending activities, is vital for individuals, businesses, and governments. But alongside the massive banks we're all familiar with, there are smaller businesses to pay attention to.
In the past decade, the integration of technology within this sector in an effort to better serve customers has become hard to ignore. And this ongoing trend has investment implications for those looking to put money to work in this area.
Here are the smartest fintech stocks investors can buy with $500 right now.
Image source: Getty Images.
PayPal
The first fintech enterprise that should be on your radar is PayPal(NASDAQ: PYPL). The business has been at the forefront of digital payments for more than two decades, and it continues to be a leader in the space.
PayPal has 436 million active accounts. During the first quarter, it handled a whopping $1.7 trillion in annualized total payment volume, showcasing its impressive scale. There are multiple segments under the hood, like the PayPal-branded checkout solution, Braintree for merchants, and Venmo. It's the latter that is exhibiting the fastest growth lately, driven by the notable adoption of the Venmo debit card product.
While there is intense competition in the payments landscape, PayPal has carved out a successful niche. That's because it has a strong brand name in the industry that individuals and merchants have come to trust. As a two-sided platform, the business benefits from a powerful network effect.
PayPal's financial situation is robust. The balance sheet is in solid shape, with $15.8 billion in cash, cash equivalents, and marketable securities compared to $12.6 billion in debt. Profitability is worth mentioning, as the operating margin was a stellar 19.6% in Q1. For this full year, the company is expecting to produce $6 billion to $7 billion in free cash flow. The plan is to spend $6 billion just on share repurchases.
The market has soured on this company, as the stock currently trades 77% off its peak from July 2021 (as of June 3). This gives investors a cheap forward P/E ratio of 14 to take advantage of. That's a good deal for a growing and profitable payments leader.
SoFi Technologies
Another fintech stock to buy right now is SoFi Technologies(NASDAQ: SOFI), the budding digital bank that's continuing to register fantastic growth. During the first quarter, the business posted a year-over-year revenue gain of 20% while adding 800,000 net new customers to the mix. As of March 31, SoFi had amassed 10.9 million customers, up tenfold in the past five years.
Clearly, the company's products and services are a hit. That's because SoFi is finding success with a goal that seems to emphasize utilizing technology to provide an exceptional user experience when it comes to handling one's finances. The average customer uses 1.5 different products, so there remains a significant opportunity to cross-sell.
A new development is that SoFi is now firmly profitable. Diluted earnings per share (EPS) totaled $0.06 during Q1, marking the sixth straight quarter of positive generally accepted accounting principles (GAAP) net income. The leadership team believes this is just the beginning. After forecasting $0.68 (at the midpoint) of EPS in 2026, the expectation is for this bottom-line figure to increase at a compound annual rate of between 20% and 25% in the years after.
It won't always be smooth sailing. Something all banks deal with is cyclicality. Should there be an economic downturn in the U.S., it's likely that SoFi's robust growth and improving profitability will take a hit. This should be temporary, though.
As of this writing, investors must be comfortable paying a forward P/E ratio of 49 to add the stock to their portfolios. At first glance, this doesn't look like a bargain deal. However, when you consider the earnings trajectory, the valuation becomes more compelling.
Should you invest $1,000 in PayPal right now?
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Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends PayPal. The Motley Fool recommends the following options: long January 2027 $42.50 calls on PayPal and short June 2025 $77.50 calls on PayPal. The Motley Fool has a disclosure policy.
