Shares of digital payments company Paysafe (PSFE) plunged 15% in a day after missing earnings earlier this month, and haven’t really recovered since. Although the company reported a 41% increase in “total payment volume” and a 13% increase in revenues, beat revenue expectations, and turned a $15.9 million loss a year ago into a $6.6 million profit in this year’s Q2, investors nonetheless punished the stock — presumably because its guidance for fiscal Q3, and to a lesser extent its guidance for the full year, didn’t quite measure up to Wall Street’s expectations.
But in the opinion of one analyst, investors who sold Paysafe stock have “undervalued” the stock’s “growth potential.”
BMO analyst James Fotheringham had the opportunity to sit down with Paysafe’s CEO Philip McHugh and CFO Izzy Dawood to discuss where the company will be going in Q3, in Q4, and beyond — and to clarify investor misperceptions that may have caused the stock’s selloff.
As Fotheringham relates, Paysafe is targeting long term organic revenue growth in the range of 11% to 14% annually. (To be clear, “organic” growth is growth in the core business, aside from any extra growth from acquisitions. But Paysafe has in fact made at least three “banking-related” acquisitions recently — SafetyPay and PagoEfectivo in Latin America, and Viafintech in Germany — and further acquisitions are anticipated). The company’s greatest growth is expected to come from its iGaming business — growing 50% per year.
Globally, Paysafe says that iGaming (online gaming, and in particular, online gambling) accounts for one third of the company’s revenues, meaning that with iGaming making up only 2% of the company’s U.S. business, there’s a lot of room to grow this division here. In that regard, Paysafe notes that “legalized iGaming” should be permitted in half of the United States by the end of this year, and grow to 30 to 35 states “over the next few years.”
But if growth is going to be so strong, you might wonder: Why is Paysafe’s guidance for this year so much weaker than Wall Street’s expectations? Why, not to put too fine a point on it, is Paysafe expecting to “miss earnings” this year?
Unfortunately, Paysafe didn’t quite answer that question, instead reassuring Fotheringham that while Q3 revenues will be “weaker” than the company had hoped, Q4 will be stronger. Problem is, this still adds up to smaller full-year revenues than either Paysafe or Wall Street had expected.
Overall, Fotheringham stays with the bulls, reiterating an Outperform (i.e. Buy) rating on PSFE shares. Investors could be pocketing gains of ~12%, should Pachter’s $40 price target be met. (To watch Fotheringham’s track record, click here)
This stock has an asset that investors should always note – a unanimous rating from the Wall Street consensus. All eight recent reviews have been positive, making for a Strong Buy rating on the shares. PSFE has an average price target of $14.75, implying ~78% upside from the current share price of $8.26. (See PSFE stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
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