Market capitalization recently has been following much smaller fintech companies in terms of how financial transactions are being carried out at present. Two companies, in particular, stand out in this aspect. One of them started as a spin-off of eBay, and their basic claim to fame was that they were the primary payment providers for eBay. This company was called PayPal. The other just started as a company that provided very small businesses, mom-and-pop operations, small retailers, and the kind with a platform where they could accept credit card payments for goods and services without incurring massive fees to install card readers other devices. This company was called Square. Both of the companies served different purposes, but both of them have converged into being much more than what their core started to be. A detailed comparison of both these fintech companies would help make the viewpoint more lucid.
Every ten to twenty years, there is a banking crisis because of the fractional reserve system, which is messy in all reality. There are a lot of flaws with the traditional banking system-its expensive, risky, and involves a ton of regulation to make sure that it does not fall apart. Fintech gives consumers a way to rethink the entire banking system.
Similarities between PayPal and Square Inc.
Both of the companies, PayPal and Square, have been wildly innovative. The second-generation products of these companies as well have become quite popular. This would include Paypal’s Venmo, which has become a standard for most smaller payments. Square similarly has a competing product called the Cash App, similar to Venmo. However, when it comes to comparing the stocks of these two companies, it can be seen that both of these are somewhat volatile. The graph lines of the stock prices of both of these companies were in tandem, which could be explained through a couple of reasons. Firstly, since both of the companies are fintech and fishing in the same pond, their stock prices follow similar graphs. So if the graph is bullish on one, it would most likely be bullish on the other in due time. If Adam o’ Dell’s green zone rating system is referred to, these stocks would be analyzed based on six factors. Both of the stocks of these companies rate poorly on size because they are larger companies. Both stocks are also expensive. They rank low on the value factor because these are fast-growth companies, and hence people tend to bid up the prices.
The plus points would be that these both are extremely high-growth companies. They have decent momentum as well, and the stocks have had a good wind in their sails and have grown substantially. The quality of these companies mostly boils down to profitability and balance sheet strength. Since fintech companies are more technology companies operating in the financial space, they tend to have very healthy balance sheets because they tend to be capital-light. They are also very profitable, so they tend to have very high returns on equity assets as well. These are partially the reasons behind these stocks being expensive.
Difference between PayPal and Square Inc.
Although both have the potential to be long-term investments, one always has a comparative edge over the other.
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Is PayPal an excellent stock to buy? PayPal Stock Forecast
However, PayPal’s current international exposure is a little bit better than that of Square Inc, which they might be able to exploit in the future. Secondly, Venmo has a much larger market share when compared to Cash App.
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Is Square an excellent stock to buy? Square Stock Forecast
However, Square’s growths rates have been better than PayPal’s. Three years’ EPS growth rate for Square is about 67 percent, whereas it is only 34 percent for PayPal. In terms of sales, the three-year annual growth rate and sales for Square Inc. is about 63 percent, whereas the growth rate for PayPal is only 17 percent. So while PayPal and Venmo are slightly more widely accepted, Square has focused on building a stronger foundation with its domestic before it branches out and spreads globally. Both stocks are significantly overvalued compared to their industry peers. PayPal has a PE ratio of 68, whereas the industry average is 20 and Square is even more.
Both the companies show immense growth potential in terms of stock prices, as they are already more expensive than their contemporaries. But this shows that its market that renders itself popular enough for people to bid on it and make the prices go higher. The decision between PayPal and Square Inc. stocks would be subjective, based on the investors’ rationale, but both will definitely prove to be great long-term investments.
