Why Stock Shift4 Online Payments Should Surpass Its Rivals


Text size

The rapid growth of Shift4 Payments relies on gaining market share, regardless of the speed of growth of the company as a whole.

Ammentorp / Dreamtime

Owning payment stocks online has been overwhelming over the past couple of months. This created an opportunity in at least one small business in the space—


Shift4 payments
.

Everything has gone well for the payout stocks for much of the year. the


ETFMG Prime Mobile Payments

the exchange-traded fund (ticker: IPAY) had gained 5.8% through October 19, which isn’t great, but not too bad, considering its 34% rise in 2020. Then the bottom fell. Since then, the ETF has fallen 20%, while big players like


PayPal funds

(PYPL),


To block

(SQ) —formally Square — and


Global payments

(GPN) tumbled even more.

The main problem is that the growth of digital payment transactions is slowing down and rapidly. Total volume is expected to grow only 8% per year by 2027, down from double-digit gains in 2019. This makes the company more vulnerable to declines in consumer demand, according to an RBC analyst. . Daniel Perlin. “Payments are more cyclical than investors previously thought, suggesting the group isn’t as much of a secular story,” he explains.

Businesses have also been hit as the Fed steps up its cut and will likely increase the pace of interest rate hikes as well, which could raise the discount rates used to value high-end growth stocks and push their prices down. valuations.

Enter Shift4 Payments (FOUR), which both processes and analyzes transactions for hotels and other guests, combining two functions that are typically performed by separate companies. Its growth is based on gaining market share, whatever the speed of growth of the company as a whole. Steps have been taken to maintain this growth by adding assets and increasing market share.

Still, the stock, which closed at $ 55.94 on Friday, is down 45% from its all-time high in April. Part of the problem is how to assess it. The company, which has a market cap of $ 4.6 billion, is trading at 43 times 12-month futures earnings, according to FactSet. But its growth is not slowing down. Earnings per share is expected to grow at an annual rate of 85% over the next three years, giving it a PEG ratio (its price / earnings ratio divided by earnings growth) of just 0.5 times, well below the


S&P 500 Index

PEG ratio of just over two. “Ultimately, the market should reward [growth] with a double multiple where the share trades ”, says Darrin peller, analyst at Wolfe Research.

Even without this type of multiple expansion, the rise in profits could further increase the Shift4 share. Analysts predict EPS will hit $ 3.47 in 2024, six times the 2021 figure, as well as sales of $ 1.1 billion, twice as high as 2021. Profit growth could exceed gains of revenues because Wall Street expects profit margins to increase as the company slows down spending.

This growth could be even better than expected. The management told its November Investor Day that it can cover $ 160 billion in total spending in 2024 in hotels and restaurants, its main clientele. That would translate to over $ 3 billion in sales, given the percentage of transactions that Shift4 charges. And the fact that he is able to both process and analyze should help him attract new customers who are fed up with paying multiple vendors. “Winning new customers or taking market share is really the main driver of growth for them,” says Chris Donat, a Piper Sandler analyst.

The big risk is that the big players in payments will invest in the capacities that Shift4 has. But Shift4 acquired smaller companies to maintain its advantage. It bought the Venue Next payment processor for $ 72 million in March, for example.

“We have added [to the stock] because we think the opportunity, the reward for risk, is fantastic, ”says Dana Kelley, portfolio manager at


Growth of Columbia’s small caps

funds.

There is still a lot of growth in the payments industry. Finding it simply means looking in the right places.

Find out more Trader: The stock market could be heading for a boom and bust in 2022, but not in that order

Write to Jacob Sonenshine at [email protected]


Comments are closed.