The FinTech (financial technology) industry is booming right now. This industry growth is creating some lucrative opportunities for investors.
Here, I’m going to highlight two UK FinTech stocks I’d buy today. I think these are a great way to capitalise on the related boom.
My top UK FinTech stock
One of my top stock picks is Alpha FX (LSE: AFX). It’s an under-the-radar British company offering foreign exchange (FX) hedging services that help businesses reduce currency risks. It also offers a payment processing network for large-scale international payments that enables businesses to send large sums of money globally more efficiently. Its customers include ASOS, Holland & Barrett, and Halfords.
Alpha FX is growing at a phenomenal rate. Between 2017 and 2020, revenue grew from £13.5m to £46.2m. Meanwhile yesterday, the FinTech company said revenues for the first half of 2021 increased a whopping 89% to £34m. As a result of this strong performance, the group expects to exceed its current expectations for the year (which it upgraded in late May).
The strong growth isn’t the only thing I like about Alpha FX. I also like the fact it’s a very profitable company. Over the last three years, return on capital employed – a key measure of profitability – has averaged 19.5%, which is excellent. Additionally, I like the fact the company is led by founder Morgan Tillbrook.
There are risks to consider here, of course. One is that the need to transact FX is closely linked to global trading activity. If economic conditions deteriorate, Alpha could be impacted. Another is the valuation. The company currently trades on a forward-looking P/E ratio of about 37, which is quite high. If growth slows, the stock could take a hit.
Overall however, I think this UK FinTech stock has a lot of appeal.
Data is the new oil
Another sector-related stock I’m bullish on is Experian (LSE: EXPN). It’s a leading provider of credit data and data analytics. Its solutions help businesses make faster, smarter lending decisions.
Experian appears to have considerable momentum right now. In May, the company said it was off to a “strong start” in FY2022 and that it was confident it would have another successful year.
Meanwhile today, Experian has posted revenue growth of 31% for the quarter ended 30 June. As a result of this performance, the company has upgraded its full-year guidance. It now expects to achieve total revenue growth for the year of 13-15% (including organic growth of 9-11%). Before today, analysts had been expecting revenue to climb 11% this year.
One risk here is the valuation. Experian currently trades at 35 times earnings, which doesn’t leave a huge margin of safety. If growth stalls, the shares could fall. Another risk to consider is industry disruption. In the US, the Biden administration wants to create a public credit reporting agency. If this goes ahead, it could hurt Experian’s revenues.
I’m comfortable with the risks however. I think this UK FinTech stock offers an attractive risk/reward proposition.
Edward Sheldon owns shares of ASOS, Alpha FX, and Experian. The Motley Fool UK has recommended ASOS, Alpha FX, and Experian. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.