It’s not unusual for stocks to trend lower after going public. But it still seems rather curious that Paysafe (NYSE:PSFE) is in the red on what amounts to no significant news. In fact, PSFE stock is still trending lower after the financial technology (fintech) sector got a boost from the leader of one of the “big banks.”
The boost I’m referring to came from JPMorgan Chase (NYSE:JPM) CEO, Jamie Dimon. In his annual letter to shareholders, Dimon stated that fintech companies are a real threat to traditional banks. So it shouldn’t come as much of a surprise that the bank is making a big investment in fintech solutions and partnerships.
However, Paysafe didn’t get the bump that stocks like PayPal (NASDAQ:PYPL) and Square (NYSE:SQ) received from Dimon’s comments. Those stocks jumped approximately 6.5% and 11.7%, respectively, in the 5 trading days after Dimon spoke.
But should PSFE stock have gone down? That seems a bit extreme even for a company that has just emerged from a special-purpose acquisition company merger at a time when investors are beginning to tire of SPACs.
Placing a Heavy Bet on iGaming
Paysafe isn’t the same company as PayPal or Square. Rather, it’s primarily a payment processor. The company processes over $100 billion in annual payment volumes.
That being said, the company is making significant inroads in the iGaming space. Paysafe has a 10% share of the U.S. iGaming market. According to Grand View Research, this is a market that may be valued at nearly $103 billion by 2025 with a compound annual growth rate (CAGR) of 11.5%.
And Paysafe is the exclusive online payment processor for DraftKings (NASDAQ:DKNG) in the United Kingdom. Plus Bill Foley who ran the SPAC and is now chairman of the board co-owns the National Hockey League’s Las Vegas Golden Knights.
Thus far, PayPal and Square have avoided the sector citing risks with iGaming transactions. However, with payments having to be placed in advance, the risks are actually quite small and it would seem that it won’t take long for these companies along with others to enter the space.
The iGaming market is also an important conduit for Paysafe to serve the unbanked and underbanked through its eCash business. I’ve remarked in the past that PayPal is also reaching out to this market, but Paysafe may be more effective at reaching the Gen-Z demographic, particularly with a lower fee structure.
PSFE Stock May Have a Floor
According to the Form 10-K that Paysafe filed on February 25, 2021, the sponsors that brought Paysafe public agreed not to sell, transfer or assign any Founder Share until the earlier of two events:
- 12 months pass from the time of the completed merger (March 30, 2021)
- Shares stay at $12 or higher for 20 trading days within any 30-day period after 150 days of the merger being complete.
The bottom line is that the founders have a reason to keep shares around the $12 mark. This should give the bulls a place to plant their flag.
Is It Safe to Buy Paysafe?
Owing to it being new to the public stage, Paysafe is not drawing a lot of attention from analysts. In fact, just two analysts have offered a rating (both give it a buy). And they have a consensus price target of $19.
My InvestorPlace colleague Mark Hake analyzed Paysafe stock shortly before the merger was completed and felt it was undervalued. Given that PSFE stock has dropped in price since going public with no news to explain it, I’ll presume Hake’s analysis still holds.
That being said, getting to $19 may take some time. The projected compound annual growth rate (CAGR) for Paysafe from now through 2023 is around 10%. That’s not bad, but it’s not at the level of PayPal or Square. However, it bears repeating that Paysafe is not the same company as those other two. And that may work to the benefit of investors who want a lower cost way to get involved in the fintech sector.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for Investor Place since 2019.
