Financial technology service provider WEX (NYSE:WEX) facilitates fuel payment processing solutions for fleet vehicles. That’s a mouthful, and because it’s a rather obscure niche market, you probably won’t see WEX stock on the front page of the financial headlines very often.
Through the company’s fuel cards, businesses can collect information and monitor their employees’ spending activity. This can help to prevent fraud, so it’s a valuable service.
Prospective investors must weigh a truly awful second-quarter fiscal performance against WEX stock’s consistent ability to bounce back from adversity. It’s not an easy decision as to whether the shares are worth the risk.
For once, I’ll actually keep my opinions to myself and (mostly) stick to the facts. At the end of the day, if you believe in the future of fleet card technology, then WEX stock might be right up your alley.
A Closer Look at WEX Stock
Looking back through the history of WEX stock, we can observe that it has recovered from each and every dip. Yet, some of those recoveries took a year or even longer.
The sharpest correction in recent memory for WEX stock occurred during the onset of the novel coronavirus. Frighteningly, the share price tumbled from $236.52 in February to a mind-melting low of $71.12 in March.
There’s been a partial recovery in WEX stock since March. However, the $180 level has provided some resistance. Moreover, September hasn’t been kind to WEX shareholders as the price has declined to the $140 area.
With a trailing 12-month price-to-earnings ratio of 49.20, WEX stock isn’t a terrific bargain. This, along with the company’s most recently released quarterly fiscal results, might dissuade you from entering into the trade right now.
About That Dismal Quarter
If it’s a CEO’s job to make lemonade out of lemons, then we can at least give WEX Chief Executive Melissa Smith an “A” for effort during the company’s second-quarter postmortem.
Admittedly, Smith wasn’t given much to work with. During the second quarter, WEX posted earnings of $1.21 per share, representing a 46.9% year-over-year decline. The company also reported quarterly revenues of $347.08 million. This, unfortunately, signifies a year-over-year decline of 21.4%.
Smith did what many CEOs have been doing lately, which is blame Covid-19. With that excuse having been adduced, Smith declared that she discerned “a few bright spots even in this challenged environment.”
In particular, Smith cited a quarterly increase in net income of $58.9 million, yielding a total of $72.7 million.
Moreover, Smith pointed to deals with “OMV, a European oil company with 2,100 locations across 10 countries that will use us for their private label processing needs” as well as with “J.B. Hunt, one of the largest trucking companies in the country.”
Value-Added Partnership Extension
To the deals that Smith mentioned, I’d like to add another one to the mix. I’m referring to a very important multi-year contract extension with transportation solutions provider Enterprise Fleet Management.
This is critically important as Enterprise “manages a fleet of more than 630,000 vehicles in the U.S. and Canada.” During fiscal year 2019, Enterprise operated more than 2 million vehicles globally. Also during that time, the company accounted for an impressive $25.9 billion in revenues.
For WEX shareholders, this contract extension is undoubtedly a major relief. I wouldn’t go so far as to call it a make-or-break event, but the continuation of business dealings with Enterprise should provide WEX investors with some confidence.
This partnership will be mutually beneficial as WEX’s fuel cards will enable Enterprise’s customers to continue monitoring and controlling activities and expenses related to fuel consumption.
The Bottom Line
So, there you have it. I managed to keep my opinions out of the mix, for the most part. What’s left is a balance of facts, some good and some not-so-good, to make an informed decision about WEX stock.
To summarize, value seekers probably won’t love WEX stock, but dip buyers might appreciate the stock’s resiliency in recovering from previous dips. And as for the fiscal strength of the company, it’s a mixed picture with a fleet of concerns (sorry, I couldn’t help myself) and plenty of fodder for bulls and bears alike.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
