In my last go-around with Paysafe (NYSE:PSFE), I made the case that speculation over special purpose acquisition companies, or SPACs, may have faded too early for PSFE stock. Seeing as how shares are down 14.6% since that April 22 commentary, I can’t say that I was wrong.
Still, will the narrative continue to be negative? That’s really the question that prospective buyers have in mind. As you know, major publicly traded securities tend to operate cyclically. Nothing ever goes up or down perpetually without some corrective action. And while I’ve been skeptical about Paysafe’s business resilience, it offers tremendous relevance.
Primarily, its flagship product paysafecard is appealing because it offers users a 16-digit code that’s not directly tied to a bank account or credit card account. In fact, you don’t even need a bank account to use paysafecard, which makes it ideal for those who don’t have access to commonly available financial platforms.
Right off the bat, I can think of three reasons why paysafecard is a net positive for PSFE stock.
- Online security: In 2019, 650,572 cases of identity theft occurred. Of this figure, 41% or just over 270,000 cases involved credit card fraud.
- New-normal paradigm: Due to the work-from-home initiative in response to the novel coronavirus, millions of people are still operating remotely, presenting an enticing target to cybercriminals. Also, more people have shopped online than ever before in the pre-pandemic era, again exposing the masses to cybercrime.
- Rising unbanked population: In 2019, the Federal Deposit Insurance Corporation (FDIC) reported that 5.4% (nominally an estimated 7.1 million) of U.S. households were unbanked. Due to the economic pressures resultant from Covid-19, this number may increase.
Therefore, on the surface, PSFE stock seems like a safe bet. However, I’d still be cautious and here’s why.
SPACs and Potential Rivals Cloud PSFE Stock
As I briefly mentioned up top and in my prior take on PSFE stock, the sharp enthusiasm for SPACs certainly benefitted Paysafe. But like any market phenomenon, corrections happen and they usually happen quite severely. Simply put, as the price of the target asset moves higher, people become increasingly unwilling to risk their capital.
This fear of bag-holding obviously didn’t do any favors for PSFE stock following its January 2021 peak. Unfortunately, the tendency for SPACs over the trailing year has been to suck in capital from investing hoards that may not have performed their due diligence. Once the realities of blank-check-based reverse mergers shined through — particularly the equity dilution — this hot trend lost its luster.
And speaking of due diligence, while the SPAC phenomenon was playing out, many rookie investors turned to meme stocks. The problem here is that as coordinated trades on social media went after the popular equity units — you know which ones I’m talking about — they divert attention away from SPACs.
Therefore, PSFE stocks seems risky. Unless you know which way the winds of social media will blow, it may not be the best decision, especially for buy-and-hold investors.
On a fundamental basis, I think competition will become problematic for Paysafe. For now, the company and its products have a dominant position in the online prepaid payment market. But this dominance is not guaranteed.
Although I’ve been skeptical recently about cryptocurrencies and blockchain-based applications, a key trend is that programmers are moving beyond just peer-to-peer networking platforms and into full-fledged digital ecosystems, such as the ability to accrue interest on virtual currencies and tokens.
If such ecosystems continue to develop, it’s possible that consumers will find these blockchain platforms more appealing for their digital finance needs.
Is a Technical Bounce-Back Possible?
Since closing at $19.24 on Jan. 21, PSFE stock has slid over 40% to hit $11.22 on the June 17 session. That made for the seventh down day in the last eight.
That said, PSFE dipped to a closing low point this year of $10.37 on May 13. From that perspective, shares are up double digits. Is it possible, then, that Paysafe hit a bottom and is ready to rise higher?
We’ve seen popular former SPACs, like Virgin Galactic (NYSE:SPCE), crater from their highs only to sharply skyrocket recently. Thus, it’s not out of the question for PSFE to do the same.
If you’d like to trade it, there might be a short-term opportunity. But for the buy-and-hold types, I’d wait for confirmation that PSFE has settled in. With so much noise and distraction, it also wouldn’t be out of the question that shares continue to decline.
On the date of publication, Josh Enomoto 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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.