Several growth stocks have rebounded strongly in 2023 after getting clobbered last year when investors shied away from sky-high valuation companies due to high interest rates. While macro pressures continue to weigh on growth companies, investors and analysts are trying to look beyond short-term noise and focus on long-term prospects. We used TipRanks’ Stock Comparison Tool, to place SoFi Technologies (NASDAQ:SOFI), Block (NYSE:SQ), and Palantir (NYSE:PLTR) against each other to pick the growth stock that has the highest upside potential at the current levels.
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SoFi Technologies (NASDAQ:SOFI)
SoFi stock has rallied 85% year-to-date, as the pause on federal loan payments is set to end, raising hopes about a rebound in the fintech company’s student loan refinancing business. Student loan interest will resume accruing on September 1, 2023, and payments will be due starting in October. The extent to which SoFi expects to benefit from the end of the student loan moratorium will be clearer when the company announces its second-quarter results in a few days.
Meanwhile, SoFi’s strength in personal loans and other financial offerings helped it offset the weakness in student loan originations and the slump in home loans due to high mortgage rates in recent quarters.
SoFi’s innovative financial offerings are driving further expansion in its customer base, with the company ending Q1 2023 with 5.7 million members, up 46% year-over-year.
Is SoFi Stock Expected to Go Up?
On June 29, JPMorgan analyst Reginald Smith reaffirmed a Hold rating on SoFi Technologies stock with a price target of $6. Smith is “incrementally cautious” on the stock at the current valuation levels and feels that a potential spike in student loan originations and other positives are already priced into the stock.
Further, the analyst continues to believe that holding student loans on the balance sheet is a sub-optimal use of capital for SoFi, given that returns on student loans are “considerably lower” than personal loans. While the company estimates the multi-year addressable student loan refinance opportunity to be $200 billion, Smith’s research suggests the actual opportunity is closer to $90 billion.
Wall Street has a Moderate Buy consensus rating on SoFi based on seven Buys, eight Holds, and two Sells. The average price target of $8.35 indicates a possible downside of 2%.
Block (NYSE:SQ)
Shares of fintech Block have been under pressure due to macro challenges and short-seller Hindenburg Research’s report.
Block addressed some of the concerns about its business by delivering better-than-anticipated first-quarter results. A 26% rise in revenue and solid margins drove a 122% increase in the Q1 2023 adjusted EPS to $0.40. In particular, the momentum in the company’s Cash App (a peer-to-peer payment app) ecosystem has been impressive.
Looking ahead, the company is boosting its business by launching innovative fintech solutions and expanding into international markets.
Is Block a Buy or Sell?
On June 23, Truist analyst Andrew Jeffrey maintained a Buy rating but slashed his price target for Block stock to $80 from $105, as he sees few near-term catalysts, considering decelerating Square ecosystem gross merchandise value (GMV). However, the analyst likes the stock’s long-term prospects.
Jeffrey noted that Square’s “sidecar” payments business is seeing elevated churn as the smallest SMBs (small and medium-sized businesses) migrate to P2P (peer-to-peer) and/or fail. However, the analyst remains optimistic about Square’s longer-term potential, calling it the leading software-integrated POS, which is poised to eventually take “upmarket” share as it competes with Clover and other players.
Jeffrey is also bullish about the Cash App ecosystem and called it the most successful “neobank.” The analyst believes that the continued monetization of the CashApp could drive EBITDA higher.
With 21 Buys, six Holds, and one Sell, Block scores a Moderate Buy consensus rating. The average price target of $86.25 implies 30.29% upside. SQ shares have advanced over 5% so far in 2023.
Palantir (NYSE:PLTR)
Palantir shares have jumped by an astounding 142% since the start of 2023. Investors have cheered the company’s first-quarter performance and the growth potential of its artificial intelligence (AI)-based offerings. Additionally, the company reported GAAP profit for two consecutive quarters and assured that it expects to remain profitable in the remaining quarters of 2023.
However, several analysts are cautious about the data analytics company due to a slowdown in its growth rate. Palantir’s first-quarter revenue increased 18% year-over-year to $525 million. However, its Q2 2023 revenue growth guidance of 12% (at the midpoint) indicates a slowdown.
Also, there are concerns about weakness in certain key metrics like remaining performance obligations (RPO) and net revenue retention (NRR).
What is the Prediction for PLTR Stock?
Last month, Goldman Sachs analyst Gabriela Borges increased the price target for Palantir stock to $10 from $9 to reflect the potential for faster medium-term growth. However, the analyst reiterated a Hold rating due to valuation concerns.
Borges feels that the rally in the stock is overdone. His analysis suggests that AI would have to drive about 15 points of acceleration in Palantir’s growth over the next 3 years (from 15% to 30%) to justify current valuations.
Wall Street’s Hold consensus rating for PLTR is based on two Buys, six Holds, and four Sells. Given the massive year-to-date rally, the average price target of $11.13 implies a downside of 28.3%.
Conclusion
SoFi and Palantir stocks have significantly outperformed Block year-to-date. That said, Wall Street sees more upside potential in fintech company Block than the other two stocks. The ongoing shift from cash to digital payments bodes well for Block’s long-term growth.
