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Mangeet Kaur Bouns

Which Financial Stock Is a Buy, Sell or Hold: PayPal Holdings (PYPL) vs. LendingTree (TREE) vs. Sunlight Financial (SUNL)

The financial services sector is well-positioned for robust long-term growth thanks to solid demand driven by consumer spending and business investment activity accompanied by rapid digital transformation. Moreover, industry players usually benefit in a rising interest rate environment as it helps them increase their revenues.

Hence, it could be wise to invest in fundamentally sound financial stock LendingTree, Inc. (TREE). However, investors could hold PayPal Holdings, Inc. (PYPL) and wait for a better entry point in this stock while avoiding struggling Sunlight Financial Holdings Inc. (SUNL) could be wise now.

Before delving deeper into their fundamentals, let’s discuss why the financial services industry has been thriving.

Companies in the financial services industry provide products and services that facilitate financial transactions and other financial activities like loans, credit cards, insurance, investment opportunities, and money management.

Thanks to sustained demand for financial services, financial institutions from real estate to insurance to investment management to banking and capital markets have shown remarkable resilience and are positioned for continued growth. Based on a report by The Business Research Company, the global financial services market is expected to reach $37.48 trillion by 2027, growing at a CAGR of 7.5%.

Moreover, the COVID-19 pandemic has accelerated digital transformation in the industry, creating new growth opportunities for financial services organizations. Emerging technologies, including artificial intelligence (AI), blockchain, machine learning (ML), smart contracts, and robotic process automation (RPA), have paved the way for advanced digital financial solutions.

These innovative financial solutions provide a level of convenience, efficiency, and security that is unmatched by traditional solutions and systems. For instance, AI is transforming the financial ecosystem, particularly in digital banking, from predictive analytics to risk management & fraud detection to portfolio optimization & customer service.

Accenture forecasts that financial services will benefit $1.20 trillion in additional GVA by 2023 from AI.

According to a report by Mordor Intelligence, the financial services application market is projected to expand at a CAGR of 7.9% by 2027. Since financial institutions have introduced digital solutions like person-to-person payment, online transfers, and other services, financial services applications have increasingly become focused.

Moreover, financial companies usually benefit from rising interest rates. In July, the Federal Reserve approved a quarter percentage point hike, bringing the fed funds rate to a target range of 5.25%-5.5%, the highest level in more than 22 years. Although inflation has come down sharply from last summer’s peak of 9.1% to 3.2% in July, it is still above the Fed’s 2% target.

The central bank may need to increase interest rates further to cool still-too-high inflation, said Fed Chair Jerome Powell, indicating to move ‘carefully’ at upcoming meetings.

Considering these conducive trends, let’s take a look at the fundamentals of the three Consumer Financial Services stocks, starting with number 3.

Stock to Sell:

Stock #3: Sunlight Financial Holdings Inc. (SUNL)

SUNL operates a business-to-business-to-consumer technology-enabled point-of-sale financing platform. The company’s platform provides secured and unsecured loans for homeowners originated by third-party lenders to purchase and install residential solar energy systems and other home improvements. SUNL serves residential solar contractors.

On August 18, SUNL’s Board of Directors approved a 1-for-20 reverse stock split of the company’s common stock. Every 20 issued and outstanding shares of the company’s Class A common stock will be converted into one share of the company’s Class A common stock.

The reverse stock split will reduce the number of shares of the company’s Class A common stock issued and outstanding from nearly 86 million to approximately 4.3 million. This move often leads to a drop in the stock’s market price, as investors consider it a sign of weakness.

SUNL’s trailing-12-month gross profit margin of negative 24.30% compares to the 59.18% industry average. Likewise, its trailing-12-month ROCE, ROTC, and ROTA of negative 105.39%, negative 20.18%, and negative 88.23% are lower than the industry averages of 11.37%, 5.78%, and 1.15%, respectively.

For the second quarter that ended June 30, 2023, SUNL’s revenues were negative $29.63 million, compared to $29.59 million in the prior year’s quarter. The company’s operating loss widened 626.6% year-over-year to $76.92 million. Its net loss before income taxes stood at $83.14 million, compared to a net income before income taxes of $4.01 million in the prior-year period.

In addition, the company’s net loss came in at $83.14 million versus a net income of $5.66 million in the same quarter of 2022. Also, its net loss per Class A share was $0.59, compared to a net income per Class A share of $0.05 in the prior-year quarter.

Analysts expect SUNL’s revenue for the third quarter (ending September 2023) to decline 15.2% year-over-year to $28.20 million. The company is expected to report a loss per share of $2.55 for the ongoing quarter.

Over the past month, SUNL’s stock has plunged 77.7% and 91.1% year-to-date to close the last trading session at $2.21.

SUNL’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

The stock has an F grade for Quality and Sentiment. It has a D for Value and Stability. It is ranked last out of 50 stocks in the Consumer Financial Services industry.

Click here to access the other ratings of SUNL for Growth and Momentum.

Stock to Hold:

Stock #2: PayPal Holdings, Inc. (PYPL)

PYPL operates a technology platform that allows digital payments for merchants and consumers globally. The company offers payment solutions under the PayPal, PayPal Credit, Braintree, PayPal Zettle, Venmo, Hyperwallet, and Paidy names. Its payment platform enables consumers to send and receive payments in nearly 200 markets and more than 150 currencies.

On August 7, PYPL launched a U.S. dollar-denominated stablecoin, PayPal USD (PYUSD). PayPal USD is designed to contribute to the opportunity stablecoins provide for payments and is 100% backed by U.S. dollar deposits, short-term U.S. Treasuries, and similar cash equivalents. It can be redeemed 1:1 for U.S. dollars.

“Our commitment to responsible innovation and compliance, and our track record delivering new experiences to our customers, provides the foundation necessary to contribute to the growth of digital payments through PayPal USD,” said Dan Schulman, PYPL’s president and CEO.

On July 26, PYPL and Microsoft Corp. (MSFT) announced Microsoft’s integration of PayPal’s Pay Later solutions in the U.S., United Kingdom, Australia, Germany, France, Spain, and Italy. Also, customers across the U.S. will soon have the option to pay with Venmo in the Microsoft store. Currently, Venmo is available in the Microsoft Store on Xbox in the U.S.

These new integrations provide customers with more flexible paying methods and help boost customer loyalty, thereby driving PYPL’s profitability and growth.

In terms of forward EV/EBITDA, PYPL is trading at 9.51x, 10.4% lower than the industry average of 10.61x. But the stock’s forward non-GAAP P/E and Price/Book multiples of 12.88 and 3.31 are 41.4% and 227.9% higher than the respective industry averages of 9.11 and 1.01.

PYPL’s trailing-12-month ROCE and ROTC of 20.67% and 9.52% are higher than the industry averages of 11.37% and 5.78%, respectively. However, the stock’s trailing-12-month gross profit margin and EBIT margin of 41.30% and 16.54% compare to the respective industry averages of 59.18% and 19.94%.

For the second quarter that ended June 30, 2023, PYPL’s net revenues increased 7.1% year-over-year to $7.29 billion. Its non-GAAP operating income grew 19.8% from the year-ago value to $1.56 billion. The company’s non-GAAP net income stood at $1.29 billion or $1.16 per share, compared to $1.08 billion or $0.93 per share in the same quarter of 2022.

However, the company’s adjusted free cash flow was $869 million, down 19.2% year-over-year.

Analysts expect PYPL’s revenue and EPS for the fiscal year (ending December 2023) to increase 7.8% and 19.9% year-over-year to $29.67 billion and $4.95, respectively. Additionally, the company has surpassed the consensus revenue and EPS estimates in three of the trailing four quarters.

Shares of PYPL have declined marginally over the past month and 14.5% year-to-date to close the last trading session at $63.74.

PYPL’s POWR Ratings reflect its mixed outlook. The stock has an overall C rating, equating to a Neutral in our proprietary rating system.

PYPL has a C grade for Sentiment, Value, and Quality. It is ranked #19 in the same industry.

Click here for the additional POWR Ratings for PYPL (Stability, Growth, and Momentum).

Stock to Buy:

Stock #1: LendingTree, Inc. (TREE)

TREE operates an online consumer platform. The company operates through Home; Consumer; and Insurance segments. It provides purchase mortgage, reverse mortgage, refinance mortgage, and home equity loans; real estate brokerage services; credit cards; personal, student, and auto loans; deposit accounts; and insurance quote products, including home and automobile.

On March 8, TREE partnered with Funding Circle, the online platform for small business loans, to offer LendingTree business customers access to fast, affordable financing from Funding Circle.

Adding FundingCircle’s loan products to TREE’s offering will provide its customers access to flexible financing solutions, including Funding Circle’s six-month to seven-year term loans of up to $500,000 that fund in as quickly as 48 hours after application submission. This partnership should bode well for LendingTree.

In terms of forward EV/Sales, TREE is currently trading at 1.14x, 61.5% lower than the industry average of 2.97x. Moreover, the stock’s forward Price/Sales multiple of 0.33 is 85.6% higher than the industry average of 2.30.

TREE’s trailing-12-month gross profit margin of 93.84% is 58.6% higher than the industry average of 59.18%. Also, the stock’s trailing-12-month EBITDA and net income margins of negative 0.37% and negative 18.93% compare to the industry averages of 20.54% and 25.81%, respectively.

TREE’s Insurance segment profit increased 9.7% year-over-year to $24.80 million in the second quarter that ended June 30, 2023. Its income before income taxes grew 101% from the year-ago value to $100 thousand. Also, its adjusted net income rose 93.4% year-over-year to $14.70 million, and its adjusted net income per was $1.14, up 96.6% year-over-year.

The consensus revenue estimate of $754.47 million for the fiscal year (ending December 2024) reflects a 9.6% year-over-year improvement. Likewise, the consensus EPS estimate of $1.90 for the next year indicates a 6.8% rise year-over-year.

The stock has slumped 11% over the past three months to close the last trading session at $17.65.

TREE’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.

TREE has a B grade for Growth, Value, and Quality. It is ranked #12 of 50 stocks in the Consumer Financial Services industry.

Beyond what we stated above, we also have TREE’s ratings for Stability, Sentiment, and Momentum. Get all TREE ratings here.

What To Do Next?

Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:

10 Stocks to SELL NOW! >


PYPL shares fell $0.21 (-0.33%) in premarket trading Wednesday. Year-to-date, PYPL has declined -10.50%, versus a 18.36% rise in the benchmark S&P 500 index during the same period.



About the Author: Mangeet Kaur Bouns


Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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Which Financial Stock Is a Buy, Sell or Hold: PayPal Holdings (PYPL) vs. LendingTree (TREE) vs. Sunlight Financial (SUNL) StockNews.com
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