Beware of These 3 Recently Downgraded Fintech Stocks

Fintech has brought about a significant change in the financial industry. It has improved various aspects of finance, including payments processing, insurance, and lending. This industry has also played a significant role in helping the world become highly digital in its communications and operations.

Although fintech has changed the way users transact finance, several fintech companies have been subject to several cybersecurity attacks. According to a study by The Clark School at the University of Maryland, a hacker attack takes place every 39 seconds on average. So, data breaches and user privacy are significant concerns for fintech companies, primarily given the sensitive nature of the data shared.

Analysts have recently downgraded fintech stocks Equifax Inc. (EFX), PagSeguro Digital Ltd. (PAGS), and StoneCo Ltd. (STNE) in the wake of concerns that include  security and poor growth prospects. So, we think it could be wise to avoid these stocks now.

Equifax Inc. (EFX)

Data, analytics, and technology company EFX in Atlanta, Ga., provides information solutions and human-resource business process outsourcing services for businesses, governments, and consumers. The company operates in U.S. Information Solutions; International; Workforce Solutions; and Global Consumer Solutions segments. Exane BNP Paribas recently downgraded EFX to ‘Neutral’ from ‘Outperform.’

EFX’s adjusted net income for the third quarter ended September 30, 2021, decreased 3% year-over-year to $228.70 million. The company’s adjusted EPS decreased 3% year-over-year to $1.85. And its operating expenses increased 9.9% year-over-year to $950 million.

Analysts expect EFX’s EPS for the current quarter ending December 31, 2021, to decrease 10% year-over-year to $1.80. The stock has declined  more than 2% in price since hitting its 52-week high of $292.11 on November 18, 2021, to close yesterday’s trading session at $282.95.

EFX’s poor fundamentals are reflected in its POWR Ratings. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

It has a D grade for Value, and a C grade for Momentum, Stability, and Sentiment. It is ranked #19 in the 53-stock Consumer Financial Services industry. Click here to check the other ratings of EFX (Growth and Quality).

PagSeguro Digital Ltd. (PAGS)

Headquartered in Sao Paulo, Brazil, PAGS is a fintech company that offers  multiple digital payment solutions to micro-merchants, small companies, and medium-sized companies. Its end-to-end digital ecosystem helps its customers to accept payments and manage their businesses. Bradesco Corretora recently downgraded the stock to ‘Neutral.’

On October 26, 2021, the FBI and Department of Homeland Security raided the Florida offices of Shenzhen, China-based Pax Technology Inc. because their payment terminals were suspected of being used for malware dropping and as ‘command-and-control’ locations. PAGS is dependent on PAX Technology for the manufacture and assembly of POS devices. So, it could also face significant regulatory action and scrutiny.

For its fiscal third quarter, ended September 30, 2021, PAGS’ non-GAAP expenses increased 66.2% year-over-year to R$2.20 billion ($394 million). The company’s cost of sales and services increased 42.1% year-over-year to R$1.50 billion ($268.04 million). Its net cash provided by operating activities for the nine months ended September 30, 2021, increased 14.9% sequentially to R$768 billion ($137 billion). Over the past three months, the stock has declined  53.2% in price to close yesterday’s trading session at $26.83.

PAGS’s POWR Ratings reflect its bleak prospects. It has an overall rating of F, which equates to a Strong Sell in our proprietary rating system. It has a D grade for Growth, Value, Stability, Sentiment, and Quality.

It is ranked #136  of the 138 stocks in the D-rated Financial Services (Enterprise) industry. To check the rating for Momentum of PAGS, click here.

StoneCo Ltd. (STNE)

São Paulo, Brazil-based STNE is a fintech company that provides an end-to-end, cloud-based technology platform to conduct electronic commerce across in-store, online, and mobile channels. The company has designed a cloud-based platform that helps clients connect, get paid, and grow their businesses while meeting the rapidly changing demands of omnichannel commerce. Bradesco BBI recently downgraded the stock to ‘Underperform.’

STNE is part of a class-action lawsuit for making false statements and failing to disclose to investors that it was experiencing difficulties implementing its credit product. And it too faces significant risks via its POS vendor, PAX Global Technology.

STNE’s adjusted pre-tax income ex-credit for its fiscal third quarter ended September 30, 2021, decreased 42.3% year-over-year to R$156 million ($27.8 million). The company’s adjusted net income decreased 53.9% year-over-year to R$132.70 million ($23.7 million). Also, its adjusted EPS decreased 53.7% year-over-year to R$0.46.

Analysts expect STNE’s EPS for its fiscal year 2021 to decrease 44.4% year-over-year to $0.35. Over the past nine months, the stock has declined 80.1% in price to close yesterday’s trading session at $17.53.

STNE’s poor fundamentals are reflected in its POWR Ratings. It has an overall F rating, which  indicates a Strong Sell in our proprietary ranking system.

It has a grade of D for Growth, Value, Stability, Sentiment, and Quality. It is ranked #155 in the 167-stock Software-Application industry. To check STNE’s rating for Momentum as well, click here.

Click here to check out our Software Industry Report for 2021

EFX shares were trading at $283.01 per share on Wednesday afternoon, up $0.06 (+0.02%). Year-to-date, EFX has gained 47.53%, versus a 26.47% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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