Not all stocks have benefited from the stock market's recent bull run. In fact, some companies have had disappointing results this year, and are still well off their all-time highs.
for example, lemonade (NYSE:LMND) This is below 91% of its peak. Still, some investors may be evaluating the current state of the business and its future direction.
But is this beaten down? growth stocks A better buy than its fintech peers SoFi technology (NASDAQ:SOFI)?Here's what investors need to know about these two companies before reaching an informed conclusion.?
ahead of the times
There's no hotter topic right now than artificial intelligence (AI). Investors are trying to figure out how to properly leverage this technology, while executives are looking to position their businesses to benefit from this technology.
To its credit, Lemonade has been leveraging AI to better serve insurance industry customers since its founding in 2015, long before AI technology gained traction. By not hiring sales agents or operating physical branches, businesses can onboard new policyholders and approve claims in just minutes. This greatly improves the user experience.
The key to Lemonade's story is growth. Even in a difficult macro environment, the company reported a 67% revenue increase in 2023 and its customer base grew by more than 200,000. Given the size of the addressable market (virtually everyone needs an insurance product at some point in their life), it's easy to be optimistic about the company's potential.
Lemonade's focus on innovation and disruption is commendable. However, owning stocks is still very risky. First, the insurance industry is highly competitive, with some of the most powerful companies also investing heavily in data and technology.
These incumbents have an advantage over Lemonade because they have a long history of operation. This is important in the insurance industry because, at the end of the day, it's all about managing risk properly. Despite prioritizing AI and machine learning, Lemonade has yet to meet its business goal of achieving a gross loss ratio of less than 75%.
This raises another concern: lack of profitability. Lemonade reported cumulative net losses of approximately $800 million over the past three years. Wall Street analysts expect the company to remain in the red for at least the next three years. This makes me think twice about buying stocks.
Until the profit reaches the moon
Like Lemonade, SoFi's investment thesis focuses on growth potential. The digital banking provider was able to increase its revenue and number of customers by 35% and 44%, respectively, in the last quarter. It can attract a younger, higher-income user base and provide some risk mitigation, which is an important factor for the financial services industry.
Make no mistake, just like insurance companies, banks face intense competition. But SoFi does a great job of standing out. It offers significantly higher savings rates than the national average, while also offering more generous FDIC insurance. This helps explain why its deposit base more than doubled in 2023, a clear indicator of a bank's quality.
This company is at a tipping point. SoFi posted ongoing net losses but eventually turned a profit ( GAAP basis) 4th quarter. Management is confident that SoFi's revenue will soar in the coming years. The company expects 2026 earnings per share to be between $0.55 and $0.80, up from $0.02 in the fourth quarter of last year.
So I think SoFi is a much safer business than Lemonade. However, that doesn't mean it lacks earning potential. The price-to-sales multiple is 3.2x, well below the historical average. If the company continues to grow revenue while increasing revenue, this fintech stock is likely to be a big winner over the long term.
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Neil Patel and his clients have no positions in any stocks mentioned. The Motley Fool has a position in and recommends Lemonade. The Motley Fool has a disclosure policy.
Is this battered fintech growth stock a better buy than SoFi? Originally published by The Motley Fool
