As digital banking tools, such as banking apps and automatic bill payments, increase in popularity, the fintech sector is poised to grow rapidly. Additionally, financial institutions have been adopting many high tech tools in an effort to cut their costs and make their businesses more user friendly. As a result of those points, venture capitalists worldwide reportedly plowed a hefty $42 billion into the sector in 2020. For retail investors, following the “big money” often turns out to be quite profitable down the road. Given all of this information, let’s dive into the three best fintech stocks to buy in August.
PayPal (PYPL)
On August 2nd, PayPal (NASDAQ:PYPL) reported good financial results for the second quarter as its revenue climbed 8% year-over-year (YOY). Further, its earnings per share, excluding certain items, jumped 24% to $1.16.
PayPal has created a huge payment network, with about 400 million active consumer accounts and roughly 35 million active merchant accounts. In light of the network effects from this huge network, as well as the increased utilization of digital payments, the company is extremely well-positioned to keep generating very impressive growth going forward.
Further, PYPL plans to use artificial intelligence to reduce its costs going forward, and it expects its top-line YOY growth to reach at least 10% by the end of 2023.
PayPal’s forward price-earnings ratio is now a very attractive 12.8.
Lemonade (LMND)
Lemonade (NYSE:LMND) is an insurer that extensively utilizes artificial intelligence in order to improve its customers’ experience and attract new customers. That approach seems to be working, as the company’s top line soared 109% last quarter versus the same period a year earlier, while its “premium (revenue) is growing more than five times faster than (its) expenses.”
Additionally, its user base climbed 21% YOY to 1.9 million. All of that data indicates that Lemonade is indeed effectively using AI to please its current customers, sell them new products and attract new users.
The Street was very upset by a seven percentage point increase in LMND’s gross loss ratio last quarter, as that metric led to a 20% dive by LMND stock after the company reported its Q2 results.
But the increase was entirely attributable to major storms that occurred in Q2, which tends to be a bad quarter for insurers. In general, Lemonade’s loss ratios have been falling. For example, the loss ratio of its core housing insurance business, excluding major storms, dropped to 69% last quarter from 110% in Q1 of 2022.
The stock has an attractive forward price-sales ratio of slightly over two times.
Interactive Brokers (IBKR)
According to SeekingAlpha columnist Shri Upadhyaya, Interactive Brokers (NASDAQ:IBKR) “relies on heavy automation to bring down the cost of its operations.” As a result, it’s able to generate very high operating margins. For example, in 2022, its operating margin came in at 66%, well above that of its peers.
Meanwhile, I believe that much of the Street is still anticipating a recession that will not occur this year or in 2024. As the long-awaited recession keeps failing to materialize, more investors, both retail and institutional, will shovel more money into stocks, boosting IBKR’s financial results and IBKR stock.
Providing evidence for that theory, IBKR’s daily average revenue trades in July climbed 2% versus June and 9% compared with the same period a year earlier.
The likely continued rebound of stocks going forward, along with IBKR’s extensive use of technology, makes it one of the best fintech stocks to buy.
On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.