Key Points

Robinhood will pull more investors away from traditional brokerages. SoFi will lure more customers away from traditional banks. Both stocks look undervalued relative to their growth potential. 10 stocks we like better than Robinhood Markets ›

Fintech companies, which digitize financial transactions with apps and cloud-based services, are often considered high-growth investments. The global fintech market could still expand at a compound annual growth rate (CAGR) of 16.2% from 2025 to 2032, according to Fortune Business Insights, as more customers pivot away from traditional financial institutions.

But over the past few years, many fintech stocks struggled as inflation curbed consumer spending, rising interest rates throttled new loans, and investors rotated toward more conservative investments. Some of those stocks bounced back as interest rates declined again, but a lot of them are still trading well below their all-time highs.Image source: Getty Images.

Two of those stocks are Robinhood(NASDAQ: HOOD) and SoFi Technologies (NASDAQ: SOFI), which trade 22% and 49%, respectively, below their record closing prices. But if you can tune out the near-term noise, both of these high-growth fintech companies might be great stocks for long-term investors.

Robinhood

Robinhood, which went public in 2021, drew in a lot of retail investors with its commission-free stock, options, and crypto trading services. From 2021 to 2024, its number of year-end funded accounts grew from 22.7 million to 25.2 million, its assets under custody rose from $98 billion to $193 billion, and its annual revenue increased from $1.82 billion to $2.95 billion.

Robinhood's growth stalled out in 2022 as rising interest rates chilled the crypto market and curbed the market's appetite for volatile and speculative stocks. But its business recovered as interest rates declined, investors pivoted back toward riskier plays, and it expanded its ecosystem with its Cash Card, digital payment services, and subscription-based Gold tier.

From 2024 to 2027, analysts expect Robinhood's revenue to grow at a CAGR of 15% as its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increase at a CAGR of 19%. With an enterprise value of $51.4 billion, Robinhood still looks reasonably valued at 28 times this year's adjusted EBITDA.

Robinhood's near-term growth will remain volatile, but it could continue to lock in younger and first-time investors with its commission-free trades and streamlined app. That makes it a good long-term fintech play if you expect its gamified trading platform to keep disrupting traditional brokerages.

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SoFi Technologies

SoFi, which went public by merging with a special purpose acquisition company (SPAC) in 2021, aspires to be a one-stop shop for financial services. It started out by providing student loans, and it subsequently rolled out mortgages, auto loans, personal loans, credit cards, insurance services, estate planning, and stock trading tools. In 2022, it launched a digital-only direct bank after it obtained a U.S. bank charter.

From 2021 to 2024, SoFi's number of year-end members quadrupled from 2.5 million to 10.1 million, its total number of products in use jumped from 1.9 million to 14.7 million, and its annual revenue jumped from $1.01 billion to $2.61 billion. Its digital-only approach drove it to grow at a much faster rate than its brick-and-mortar peers. Its fintech subsidiary Galileo, which provides payment processing and card issuing services, serves nearly 160 million accounts on its own.

That growth trajectory is impressive, but a temporary freeze on student loan payments (from 2020 to 2023) and higher interest rates spooked its investors. But those headwinds are dissipating now that student loan payments have resumed and interest rates are declining.

From 2024 to 2027, analysts expect SoFi's revenue and adjusted EBITDA to rise at a CAGR of 20% and 32%, respectively. With an enterprise value of $13.5 billion, it looks cheap at just 15 times this year's adjusted EBITDA. So if you believe SoFi will keep drawing more customers away from traditional banks, it might be a great long-term investment right now.

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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

2 Brilliant Fintech Stocks to Buy Now and Hold for the Long Term was originally published by The Motley Fool

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