StoneCo vs. Upstart: Which Fintech Stock Has More Upside This Year?

Core Insights - The global fintech market is projected to reach $1.12 trillion by 2032, attracting investor interest in disruptors like StoneCo and Upstart that can scale profitably amid changing regulatory and macroeconomic conditions [1] Company Overview: StoneCo - StoneCo is focused on Brazil's micro, small, and medium business (MSMB) market, offering a full-stack payments, banking, and credit solution [2] - The company reported a 17% year-over-year increase in MSMB total payment volume (TPV) to R$119.5 billion and a 17% rise in active clients to 4.3 million in Q1 2025 [4] - Retail deposits grew by 38% year over year to R$8.3 billion, with R$6.3 billion in time deposits, enhancing funding diversification [5] - StoneCo's credit portfolio stands at R$1.4 billion with non-performing loans (NPLs) at 4.57%, indicating effective risk management [5] - A strategic divestiture of its software segment, including the R$3.41 billion sale of Linx, is expected to improve margins and operational focus [6] - The company has seen an increase in "heavy users" of its services, rising from 26% to 38% [6] Company Overview: Upstart - Upstart utilizes an AI-driven underwriting platform, automating 92% of loans in Q1 2025, with conversion rates improving to 19% [8] - The company is expanding into new verticals such as auto refinancing and HELOCs, with auto originations increasing by 42% sequentially and HELOC volumes growing by 52% [9] - Over 50% of Upstart's loan volume is now backed by committed capital, with 32% of originations coming from super-prime borrowers, indicating improved credit quality [9] Valuation and Performance Comparison - StoneCo trades at a forward Price/Sales (P/S) ratio of 1.39, while Upstart's P/S ratio is 6.64, suggesting StoneCo is more attractively valued [10][15] - StoneCo's sales and EPS estimates for 2025 imply year-over-year increases of 7.6% and 10.4%, respectively [12] - Upstart's sales estimates for 2025 indicate a significant year-over-year rise of 59.5% [14] - Year-to-date, StoneCo shares have outperformed both Upstart and the S&P 500 composite [16] Conclusion - StoneCo presents a compelling investment opportunity with its focus on profitable growth in an emerging market, while Upstart is recognized for its innovative approach in credit underwriting [18] - Despite both companies holding a Zacks Rank of 3 (Hold), StoneCo's valuation appears more favorable at this time [19]