SoFi vs. PayPal: Two Beaten-Down Fintech Stocks. Which Is the Better Comeback Story?

SoFi (NASDAQ: SOFI) and PayPal (NASDAQ: PYPL) are two of the most widely followed fintech stocks in the entire market, and both have been beaten down. SoFi has fallen by more than 45% from its 52-week high, despite reporting revenue growth of more than 40% in the latest quarter. PayPal has declined by 47% from its recent peak and is a staggering 86% below its 2021 all-time high, despite strong profitability.

In this article, I'll take a side-by-side look at both of these beaten-down fintech stocks, discuss why each one has been under pressure and the opportunities ahead, and give my honest take on which is the better investment opportunity right now.

SoFi: Incredible momentum, but Wall Street isn't convinced

SoFi's business has been firing on all cylinders for a long time, and it shows no signs of slowing down. In the first quarter, SoFi reported 41% year-over-year revenue growth, 35% growth in members to 14.7 million, and rapidly growing earnings per share.

Image source: Getty Images.

Perhaps most significantly, SoFi's cross-buy rate has steadily increased from 36% to 43% over the past year. This is the percentage of new products (such as checking accounts or credit cards) opened by existing customers, and it is significant for two main reasons. First, it's much cheaper for SoFi to sell a product to an existing customer than to acquire a new one. Second, the more products each of its members has with the bank, the deeper the relationships SoFi has with its customers, creating a "stickier" member base.

In addition, SoFi recently launched the first stablecoin issued by a nationally chartered bank, a development that's definitely worth monitoring.

Of course, SoFi isn't exactly down for no reason. The company kept its full-year guidance steady despite a massive first-quarter earnings beat. Elevated interest rates could hurt demand for loan products. And, the bank completed a dilutive $1.5 billion equity raise earlier this year, despite having no clear need to do so.

SoFi still isn't a cheap stock by most metrics, but it looks far more attractive than it did at the beginning of the year. In fact, with shares trading at 2.04 times book value, SoFi is significantly cheaper than mega-bank JPMorgan Chase (NYSE: JPM), which trades for 2.6 times book -- and certainly isn't growing revenue at a 41% rate.

PayPal is in transition -- again

PayPal's stock is beaten down for a pretty clear reason. Its growth has been anemic (1% adjusted EPS growth in the first quarter), and the company recently replaced its CEO after several years of slow progress. The stock trades for less than eight times earnings right now, so it's essentially priced for no growth.

However, there are some reasons to be optimistic about it. For one thing, the company is doing a solid job of growing its Venmo platform, where the most untapped monetization opportunities arguably lie. Total payment volume on Venmo grew 14% year-over-year in the first quarter, and features like "Pay With Venmo" gained impressive traction.

Second, it's important to emphasize just how profitable PayPal's business is. The company generates about $7 billion in annual free cash flow, and with new CEO Enrique Lores targeting $1.5 billion in cost savings over the next 2-3 years, it could get even more profitable, even with sluggish revenue growth. Plus, PayPal is buying back its own stock hand-over-fist, indicating that management believes the stock is undervalued.

Finally, if PayPal can successfully return its platform to growth, embrace AI opportunities (a big focus for Lores), and keep PayPal's branded checkout as the leading platform, the current price could end up being ridiculously cheap. But those are all big "ifs."

Which is the better buy now?

To be clear, I own both of these stocks in my portfolio, and I think there are compelling reasons to buy both at their current valuations. In my view, SoFi is a misunderstood company actively disrupting a largely outdated industry, while PayPal is a mature payments leader struggling to find its next growth lever.

Both of these stocks could regain their recent highs under the right circumstances. I'd give SoFi the edge when it comes to the better comeback story, mainly because the stock is beaten down for reasons that have little to do with its own business results, but on the other hand, PayPal is certainly a high-quality business to be able to buy for less than eight times earnings.

JPMorgan Chase is an advertising partner of Motley Fool Money. Matt Frankel, CFP® has positions in PayPal and SoFi Technologies and has the following options: long January 2027 $75 calls on PayPal, long January 2027 $95 calls on PayPal, short January 2027 $135 calls on PayPal, and short January 2027 $85 calls on PayPal. The Motley Fool has positions in and recommends JPMorgan Chase and PayPal. The Motley Fool recommends the following options: short June 2026 $50 calls on PayPal. The Motley Fool has a disclosure policy.