The fintech industry has witnessed massive growth in recent years amid increasing digitalization processes caused by the COVID-19 pandemic. According to Market Data Forecast, the global fintech industry is estimated to reach $324 billion, growing at a CAGR of 23.4% over the next five years.

However, year-to-date (YTD), the fintech industry underperformed the whole market due to the increasing industry regulations as well as other industry-specific challenges, as evidenced by the 9.23% decrease in the Global X FinTech Thematic ETF (FINX).

In this article, I intend to analyze and compare two fintech stocks: PayPal Holdings, Inc. (PYPL) and Affirm Holdings, Inc. (AFRM). Affirm operates as a financial technology company that offers a state-of-the-art “buy now, pay later” lending platform for e-commerce transactions. PayPal is one the largest debit electronic payment systems that allows customers to pay bills and purchases, send and receive money transfers. YTD, shares of PYPL are down 18%, while AFRM stock has increased 0.5% over the same period.

Recent Developments

On December 16th, The Consumer Financial Protection Bureau issued several orders to five "Buy Now, Pay Later" (BNPL) companies to gather more data regarding the risks and benefits of BNPL credit. Both PYPL and AFRM came to this list amid regulators' concerns about accumulating debt, regulatory arbitrage, and data harvesting on the BNPL market. CFPB Director Rohit Chopra said, "Buy now pay later is the new version of the old layaway plan, but with modern, faster twists where the consumer gets the product immediately but gets the debt immediately too." As a result, BNPL companies turned red, with AFRM falling over 9% after the announcement. 

Recent Quarterly Performance & Analysts’ Estimates

In terms of Affirm's financials, the company’s total revenue for its fiscal first quarter of 2022 grew 54.8% year-over-year to $269.39 million. Also, AFRM topped the Wall Street revenue estimates by $20.03 million. AFRM's GAAP EPS stood at ($1.13), missing consensus by $0.74. 

The company's gross merchandise volume has been reported 84% higher year-over-year at $2.7 billion. Transactions per active user were improved by 8% to 2.3 as of September 30th, 2021.

The company’s EPS is expected to grow 49.57% year-over-year to ($0.20) in its fiscal second quarter of 2021. Analysts expect Affirm's revenue to increase 63.40% year-over-year to $333.40 million in the current quarter.

PayPal's top line for its fiscal third quarter of 2021 has risen 13.2% year-over-year to $6.18 billion, but the company missed Wall Street revenue estimates by $50 million. PYPL also posted a total payment volume ("TPV") of $310 billion, up 26% compared to the year-ago quarter. Additionally, PayPal Holdings reported a Non-GAAP Q3 EPS of $1.11, topping analysts' consensus by $0.03.

For the fourth quarter, analysts project PYPL's EPS to be $1.13, representing a moderate 4.6% increase compared to the year-ago EPS of $1.08. Besides, analysts expect that PYPL's revenues for the current quarter should lift by 12.50% to $6.88 billion. 

Comparing Valuations

In terms of Forward EV/Sales, AFRM is currently trading at 23.50x, which is 172.6% higher than PYPL, whose multiple is currently standing at 8.62x. When it comes to the TTM P/B multiple, AFRM's P/B multiple of 11.81x is slightly higher than PYPL's 10.19x. 

However, their EV/sales and P/B multiple are significantly higher than the industry’s median of 4.16x and 4.57x, respectively. Therefore, AFRM’s relatively high growth rates could somewhat justify its premium valuations, while PYPL’s moderate growth rates and overvalued conditions could create additional pressure on its stock. 

The Bottom Line 

I believe that AFRM is a better investment than PYPL at these levels. AFRM’s relatively small size should allow it to better capitalize on the industry's growth, making it a worthy high-growth stock. Moreover, AFRM's recent quarterly report and forward growth rates look better. Finally, AFRM's premium valuation could make sense, adjusting it to the company's growth rates. 

AFRM shares were trading at $97.68 per share on Thursday morning, down $3.39 (-3.35%). Year-to-date, AFRM has gained 0.45%, versus a 27.53% rise in the benchmark S&P 500 index during the same period.

Oleksandr Pylypenko has more than 5 years of experience as an investment analyst and financial journalist. He has previously been a contributing writer for Seeking Alpha, Talks Market, and Market Realist.

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