Better Fintech Stock: SoFi vs. Robinhood

There's been a lot of interest from investors in financial technology (fintech) stocks lately as companies in the industry have continually expanded their services and gained new customers. Two fintech companies that have experienced significant growth over the past few years are SoFi Technologies (NASDAQ: SOFI) and Robinhood (NASDAQ: HOOD), whose share prices have risen 99% and 262% over the past year, respectively.

SoFi and Robinhood take different approaches to their fintech services, but both are excelling in their respective niches. Which is the better stock to buy right now? Let's take a look at the advantages for both.

Image source: SoFi Technologies.

The case for SoFi

SoFi has been a standout fintech company, having successfully attracted a growing number of members. In the recently reported third quarter, membership increased 35% from the year-ago quarter to an impressive 12.6 million. The fintech market is highly competitive, including tech companies and traditional banks, which makes SoFi's membership gains even more impressive.

Part of the appeal for members is the company's extensive range of services. Members can open checking and savings accounts with SoFi, apply for personal loans, get a mortgage, buy stocks, and even shop for car insurance. The result of having so many services and members has been a steady increase in sales, with revenue rising 38% in the third quarter to $962 million. Non-GAAP (adjusted) earnings were even more impressive, increasing 120% to $0.11 per share.

What's more, SoFi's loan services have helped the company increase its fee-based revenue. The company charges specific fees for its loans, as well as origination fees and brokerage fees that added up to $409 million in the third quarter -- a 50% increase from the year-ago quarter.

With its one-stop-shop approach to financial services, SoFi has created an easy-to-use financial services ecosystem that's appealing to customers and a boon for business.

The case for Robinhood

Robinhood's business has been in full growth mode ever since everyday investors began gobbling up stocks during the pandemic in 2020. The company's app appeals to a younger investor base, and its easy access to buying and selling cryptocurrencies, along with its early lead in popularizing commission-free trading, has helped it surge in popularity.

The good times have continued to roll for Robinhood, with sales doubling in the third quarter to $1.3 billion and diluted earnings per share surging 259% to $0.61. Robinhood made most of that money from its transaction-based revenue in the quarter as sales from the segment jumped 129% to $730 million, fueled mainly by cryptocurrency purchases.

Interest in Robinhood's investing platform isn't all that surprising right now. The S&P 500 has jumped 52% over the past five years, encouraging investors to buy more stocks and boosting interest in Robinhood's platform.

Which is the better fintech stock to buy right now?

Both companies have successfully built niche fintech businesses and are reaping immense benefits from them. What's more, SoFi and Robinhood both have a price-to-earnings ratio of approximately 50, compared to the S&P 500's average P/E ratio of about 31, which means neither stock currently appears to be a better deal than the other.

I believe investors could benefit over the long term by owning either of these fintech leaders, but if I had one word of caution, it would be for Robinhood. The company is clearly benefiting from a massive bull market that has been ongoing for years. If the investment tide switches to a more pessimistic outlook, I'd expect Robinhood's share to feel the pinch more than SoFi's, considering that its main business is built on the average investor buying stocks and crypto.

Chris Neiger 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.