Is Chime Stock a Buy, Sell, or Hold After Nearly Doubling From Its 52-Week Low?
Key Points
Chime is down from its first-day closing price, but it recently jumped after a strong earnings report.
The company announced that it's acquiring Stride Bank, giving it a complete banking system.
It just reported its second quarter of GAAP profitability.
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Chime (NASDAQ: CHYM) was a hot initial public offering (IPO) last year that hasn't delivered for shareholders. The stock is down 19% from its first day of trading.
However, Chime seems to have managed through the worst of its issues. The stock bottomed out in June, and it's up 80% since then. Is now the time to buy?
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Banking services for all
Chime is one of the new digital banks that have emerged to offer an improved user banking experience. It targets a lower-income population that may be excluded from the best parts of the financial system.
Image source: Getty Images.
It's actually a financial infrastructure company rather than a bank; it handles the digital elements of finance, but it partners with banks for the actual banking services. However, it's in the process of acquiring Stride Bank, one of its banking partners, which will give it a complete end-to-end financial system. That could give Chime a big boost and help it get closer to profitability.
Chime stock jumped recently after an excellent earnings report. In the second quarter, revenue increased 27% year over year, and it was the second quarter of generally accepted accounting principles (GAAP) profitability. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin of 15% expanded by 12 percentage points from last year.
The digital banking industry is starting to look crowded. Beyond the traditional banks, which all have digital channels, there are neobanks like SoFi Technologies and Happen Bank that are digital-only. Chime is carving out a specific niche, and it has healthy growth opportunities. It's getting close to an annual profit, and owning its own bank could give it a strong boost. I would call it a buy, but I wouldn't make it a central position in your portfolio.
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Jennifer Saibil has positions in SoFi Technologies. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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