Special purpose acquisition company (SPAC) stocks are no longer the hottest thing on Wall Street. As a result, the price of Paysafe (NYSE:PSFE) stock has dropped. The stock, which “deSPACed” back in March, has fallen back to prices near its offering price of $10 per share.
Declines may continue as uncertainty hits the markets and investors keep bailing out of previously-hot sectors like SPACs. Before the dust settles, PSFE stock may fall down to single-digit prices.
At that point, valuation will be cheap compared to its potential growth. Sure, projections aren’t set in stone. But Paysafe’s situation may be different from other SPAC plays, which have provided long-term estimates that investors are taking with a grain of salt.
There are good reasons to believe Paysafe’s growth will live up to expectations. And over time, said growth will help PSFE stock rebound. It may find its floor long before it falls below $10 per share. But if PSFE stock does drop to single-digit prices, consider it something to pounce on. It’ll be a fantastic entry point for a long-term position in the online gambling (iGaming) payments processor.
Valuation Starting to Look Reasonable for PSFE Stock
So far, the sentiment regarding SPAC stocks is still negative. As this investing trend cools off, the decline of SPAC valuations could continue. Paysafe shares may pull back as a result, even though its valuation has already hit more-than-reasonable levels.
Back when it was known as Foley Trasimene Acquisition II, I broke down the valuation situation with the recently closed blank check merger. At the time, PSFE stock, then known as BFT stock, was trading for more than $15 per share. The stock looked expensive based on the numbers in its merger presentation. But when its growth was factored in, valuation started to look less frothy. After the recent pullback, today’s price of about $12 per share is starting to look cheap.
A valuation discrepancy alone won’t put PSFE stock back on an upward trajectory. It’ll need to deliver on its promised growth levels. But with a major megatrend supporting it, there’s a good chance Paysafe’s growth will live up to expectations and clear a path to a PSFE stock rebound.
iGaming Growth Backs Up PaySafe’s Projections
Some may doubt this relatively mature company can remain a growth story. U.K.-based Paysafe’s overseas operations, which include brands like Skrill and Neteller, are more established and therefore might have less runway. But the sky’s the limit for Paysafe’s U.S. operations.
The U.S. iGaming market has picked up in recent years. Before the Supreme Court ruled in favor of online sports betting in 2018, it was at best a niche industry. But by 2020, overall iGaming revenue came in at $59.6 billion. And that may be just the start. Online gambling revenue could more than double over the next six years, hitting levels as high as $127.3 billion by 2027.
This bodes well for Paysafe. The company already has deals with several leading names in the industry, including DraftKings (NASDAQ:DKNG) and Caesars Entertainment’s (NASDAQ:CZR) William Hill. As more U.S. states legalize online gambling and overall volumes increase, expect the top and bottom line results from Paysafe’s U.S. unit to benefit.
Shares might remain beaten-down for now as investors avoid anything SPAC-related. But as investors begin to judge PSFE stock on its own merits, they’ll find plenty to send the stock to its high-water mark near $20 per share. Maybe not in a matter of months, or even a year. But even if it takes more than two years, that’ll still be a solid return from its current prices.
Whether Now or After the Dust Settles, Consider This a Buy
Valuation for Paysafe is reasonable now. But that may not prevent shares from pulling back further. The PSFE stock price could also drop to single-digit territory if the SPAC stock selloff continues.
In its current state, PSFE stock is a worthwhile buy for investors thinking about the long term. And if another pullback puts PSFE stock at single-digit prices, it will become a screaming buy. Either way, with signs pointing to an eventual rebound, now’s the time to start accumulating a position.
On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.