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Rising interest rates are tailwinds for Canadian bank stocks, but this hasn’t happened in 2023. The giant lenders are in a bind when they should earn more on loans. Rampant inflation and a potential recession are stronger headwinds, forcing them to raise provisions for credit losses (PCLs) and sacrifice loan profits.
All the big bank stocks have struggled for most of the year. Only Canadian Imperial Bank of Commerce (+0.33%) and National Bank of Canada (+2.12%) have positive returns entering the last quarter of 2023. Royal Bank of Canada (-3.93%), Toronto Dominion Bank (-3.38%), Bank of Montreal (-3.31%), and Bank of Nova Scotia (-2.14%) are in the red year to date.
A financial technology company, surprisingly, outshines traditional bank equities thus far in 2023. Payfare (TSX:PAY) isn’t a dividend payer like the Big Six banks. Still, the microcap stock outperforms with its 26.11% year-to-date gain. The $258.2 million fintech serves a niche market, particularly the gig economy.
The share price is only $5.41. Based on the recommended buy ratings of market analysts, Payfare could soar higher. Its 12-month average price target is $11.67 — a potential return of 115.7%. A $5,000 investment today could grow to $10,785.58 in one year.
Payfare’s primary goal is to innovate within the financial technology industry. The company provides digital banking solutions and a versatile payout system focusing on the gig economy workers and their needs. On the business side, it partners with leading gig platforms like Lyft, DoorDash, Uber Technologies, and Uber Eats.
The independent contractors that work for Payfare partners can enroll for a free digital banking app and payout debit card for faster access to earnings at zero cost. Also, the gig platforms and marketplaces incur no cost by using the efficient worker payout solution and instead save time and resources.
Impressive revenue and user growth
In the second quarter (Q2) of 2023, revenue reached a record $46.5 million, representing a 43% jump from Q2 2022. As of June 30, 2023, active users are 304,074 — 34% higher than a year ago. Because of the significant increase in cash generated from operating activities, Payfare’s free cash flow (FCF) topped $0.6 million — a 113% turnaround from the prior year period.
For the first half of 2023, net income is $3.4 million compared to the $5 million net loss in the same period in 2022. “We were focused on building new partner integrations in the second quarter after successfully winning two RFP (request for proposal) processes while expanding profitability,” said Marco Margiotta, Payfare’s chief executive officer and founding partner.
Margiotta added, “Our business development pipeline remains active with opportunities in the gig economy and Earned Wage Access for regular employers. We look forward to sharing more as these programs get closer to commercialization.”
Payfare calls out investors to grow with them, as the company has impressive financial results to support the invitation. Moreover, Margiotta says the business generates positive net earnings and FCF. The fintech company won’t need external financing to fund its robust pipeline of organic growth opportunities. There could be stock price volatility, but not enough to impact or stall growth initiatives.